Which one of the following is an example of homemade leverage?
A)An investor borrows money to invest in a car.
B)An investor sells part of their stocks to put down a down payment on a house.
C)An investor borrows money to invest more in a company in which they own shares.
D)An investor invests in the derivatives of a firm.

Question

Quizplus · Accepted Answer

Homemade leverage refers to the act of an individual using their own personal borrowing to increase their potential investment returns. Option C best fits this description as the investor is borrowing money to invest more in a company in which they already own shares. Option A is just regular borrowing for an investment, option B is using partial sale of stocks for a home purchase, and option D is investing in derivatives which can involve leverage but is not homemade leverage.

Which One of the Following Is an Example of Homemade