Which of the Following Statements Are Correct in Regards to Financial

question 135

Multiple Choice

Which of the following statements are correct in regards to financial leverage?

• A) Financial leverage is said to be 'negative' if the rate of return is higher than the borrowing rate.
• B) Financial leverage is said to be 'positive' if the rate of return is lower than the rate of borrowing.
• C) Financial leverage is borrowing at one rate and investing at a different rate.
• D) Financial leverage can decrease the return on equity.

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Definitions:

VaR (Value At Risk)

A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over a specific time frame.

Returns

The profit or loss generated on an investment over a specific period, usually expressed as a percentage.

Sharpe Measure

A ratio used to evaluate the risk-adjusted return of an investment, calculated by subtracting the risk-free rate from the return of the investment and dividing by the investment's standard deviation.

Excess Returns

Returns on an investment that exceed the benchmark or risk-free return, often used as a measure of the performance of investment managers.