Leverage amplifies:

A Only gains

B Both gains and losses — using borrowed funds increases potential returns but also increases risk

C Only losses

D Neither gains nor losses

✓ Correct Answer: Option B

Financial leverage: using debt to increase investment exposure. Magnifies returns on equity when asset returns > cost of debt, but magnifies losses when returns fall below debt cost.

💡 Why is B) the correct answer?

The correct answer to the question "Leverage amplifies:" is Option B: Both gains and losses — using borrowed funds increases potential returns but also increases risk.

The other options — A) Only gains, C) Only losses, D) Neither gains nor losses — are incorrect for this Pre-MBA Exam Prep question. As explained above: Financial leverage: using debt to increase investment exposure. Magnifies returns on equity when asset returns > cost of debt, but magnifies losses when returns fall below debt cost.

📚 About This Pre-MBA Exam Prep Practice Question

This 2-level Pre-MBA Exam Prep question from the 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 Pre-MBA Exam Prep practice test or use flashcards for spaced repetition review.

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Leverage amplifies:

✓ Correct Answer: Option B

📚 About This Pre-MBA Exam Prep Practice Question

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