Final answer:
The leverage ratio, in this case, is 10:1, indicating that for every dollar of the buyer's own money, $10 was borrowed to finance the purchase of a $1,000,000 asset.
Step-by-step explanation:
The leverage ratio is a financial term that indicates the amount of debt used to finance an asset relative to the value of the asset. In the example given, an asset with a purchase price of $1,000,000 was bought using $100,000 of the buyer's own money. The leverage ratio (a) can be calculated by dividing the total value of the asset by the amount of the buyer's own money used in the purchase, which is $1,000,000 / $100,000 = 10. This means the leverage ratio is 10:1, indicating for every dollar of the buyer's own money, $10 was borrowed to finance the purchase.
The leverage ratio is a financial metric that signifies the proportion of debt employed to finance an asset relative to the asset's value. In the provided example, an asset with a $1,000,000 purchase price was acquired using $100,000 of the buyer's own funds. The leverage ratio (a) is computed by dividing the total value of the asset by the amount of the buyer's own capital invested in the purchase: $1,000,000 / $100,000 = 10. This results in a leverage ratio of 10:1, indicating that for every dollar of the buyer's own capital, $10 was borrowed to facilitate the acquisition. The leverage ratio is a crucial measure in assessing the extent of financial leverage used in an investment, influencing risk and potential returns associated with the asset.