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LOS a: Evaluate the effects of leverage on portfolio returns.
Q1. Which of the following statements regarding leverage is FALSE?
A) Leverage is beneficial only when the strategy earns a return greater than the cost of borrowing.
B) A leverage-based strategy decreases portfolio returns when the return on the strategy is greater than the cost of borrowed funds.
C) Leverage refers to using borrowed funds to purchase a portion of the securities in the portfolio.
Q2. Which of the following is an advantage of leverage? Leverage:
A) magnifies the return from a security for a given price change.
B) decreases the risk for a given return potential.
C) increases the return potential without incurring larger risk.
Q3. Which of the following best characterizes leveraging? Leveraging involves:
A) exploiting mispricings in the market.
B) borrowing funds to implement a trade.
C) writing options. | 
发表于 2009-3-6 10:02
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