Question

Financial leverage:_____

a. is a concept that does not apply to individuals.
b. arises because most borrowed funds have a fixed interest rate.
c. usually has no bearing on the risk associated with a company.
d. arises because most borrowed funds have a variable interest rate.

Answer 1

rateAnswer:

D) Arises because most borrowed funds have a variable interest rate.

Step-by-step explanation:

Financial Leverage means acquiring assets with ddebts or borrowed funds. When funds are borrowed, interest rates are expected but in financial leverage, interest rates are variable because when interests are low or less than the increase rate in an asset's value, it decreases the value of the asset but when the rate of interest is more than the rate of increase in an asset's value, it is an increase in the asset's value. Increase in an asset's value results in a very large gain on the owner's money or worth.

Answer 2

b. arises because most borrowed funds have a fixed interest rate.

Step-by-step explanation:

Financial leverage is simply debt divided by equity. It is the presence of debt in the capital structure of an organization or firm. The is when firms use debts to buy more assets or rather the degree or extent to which a firm or an organization uses borrowed money. When the financial leverage ratio is too high, it is considered that the firm or organization is at risk of bankruptcy and vice versa.