Final answer:
The statement that management should tailor leverage to its risk tolerance is true; examples of when high risk has been detrimental include the 2008 financial crisis and the dot-com bubble.
Step-by-step explanation:
The statement "Management should tailor the use of leverage to meet its own risk-taking desires" is true. Leveraging, or using borrowed capital for investment, can amplify both gains and losses. The degree of leverage a company uses should align with its management's risk tolerance and investment strategy. For example, a conservative firm may use less leverage to minimize risk, while a more aggressive firm may use high leverage to potentially increase returns.
Throughout history, there have been several instances where a high risk level has been detrimental to an investment portfolio. One notorious example is the 2008 global financial crisis, where excessive risk-taking, particularly in the housing market and through the use of complex financial instruments like mortgage-backed securities and derivatives, led to massive losses. Another example could be the dot-com bubble in the late 1990s and early 2000s, when exorbitant valuations of internet-based companies eventually led to a market crash.