When investors use leverage in their own portfolios to adjust the leverage choice made by the firm,we say that they are using ________.
A) homemade leverage
B) operating leverage
C) financial leverage
D) total leverage

Question

Quizplus · Accepted Answer

Homemade leverage refers to the use of personal borrowing to adjust the overall leverage ratio of an individual's portfolio. This can be done by borrowing to invest in the company's stock or by borrowing against existing assets to increase investment in the company's shares. By doing so, investors can modify the overall risk profile of their portfolio without relying solely on the company's choice of leverage. Therefore, answer option A is the correct choice. Operating leverage refers to the relationship between fixed and variable costs, financial leverage refers to the use of debt to finance assets, and total leverage is the combination of operating and financial leverage. These options are not relevant to the concept of homemade leverage.

When Investors Use Leverage in Their Own Portfolios to Adjust