Financial leverage increases:

A Only the cost of equity

B Both potential returns and financial risk to equity holders

C Only risk

D Only returns

✓ Correct Answer: Option B

Leverage amplifies both upside returns and downside risk for equity holders.

💡 Why is B) the correct answer?

The correct answer to the question "Financial leverage increases:" is Option B: Both potential returns and financial risk to equity holders.

The other options — A) Only the cost of equity, C) Only risk, D) Only returns — are incorrect for this CFA Exam Prep question. As explained above: Leverage amplifies both upside returns and downside risk for equity holders.

📚 About This CFA Exam Prep Practice Question

This 2-level CFA Exam Prep question from the Corporate Finance topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free CFA Exam Prep practice test or use flashcards for spaced repetition review.

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Financial leverage increases:

✓ Correct Answer: Option B

📚 About This CFA Exam Prep Practice Question

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