An investor can create the effect of leverage on his/her account by
I.buying equity of a levered firm;
II.investing in risk-free debt like T-bills;
III.borrowing on his/her own account
A)I only
B)II only
C)III only
D)I and III only

Question

Quizplus · Accepted Answer

Buying equity of a levered firm allows an investor to benefit from the firm's leverage. Borrowing on his/her own account creates leverage as well, as the borrowed funds can be used to invest in other assets, potentially increasing the return on investment. Investing in risk-free debt like T-bills does not create leverage, as the returns on such investments are typically low and not influenced by the investor's own capital.

An Investor Can Create the Effect of Leverage on His/her