Why Is Debt Often Referred to as Leverage in Finance

question 83

Multiple Choice

Why is debt often referred to as leverage in finance?

• A) Debt magnifies the yield to maturity on the firm's bonds.
• B) Debt magnifies both the potential returns and the risk to bondholders.
• C) Debt magnifies the debt ratio.
• D) None of these.

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Definitions:

Argument

A connected series of statements intended to establish a proposition or persuade someone of a particular point of view.

Logic

The study of reasoning, or the study of the principles and criteria of valid inference and demonstration.

Evaluating

The process of assessing or judging the value, nature, character, or quality of something.

Argument

A reason or set of reasons given with the aim of persuading others that an action or idea is right or wrong.