Explain Why Using Leverage to Purchase Risky Securities Is So

question 35

Essay

Explain why using leverage to purchase risky securities is so popular.

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Definitions:

Total Debt Ratio

A financial metric that compares a company's total liabilities to its total assets, indicating what proportion of a company's assets is financed by debt.

Equity Multiplier

A financial ratio indicating the portion of a company's assets that are financed by stockholder's equity.

Cash Ratio

A liquidity ratio that measures a company's ability to pay off its short-term liabilities with its cash and cash equivalents.

Current Ratio

A liquidity ratio that measures a company's ability to pay short-term obligations with its current assets, calculated as current assets divided by current liabilities.