(TCO 7) Which one of the following statements concerning financial leverage is c
ID: 2678787 • Letter: #
Question
(TCO 7) Which one of the following statements concerning financial leverage is correct? (Points : 4)Financial leverage increases profits and decreases losses.
Financial leverage has no effect on a firm's return on equity.
Financial leverage, refers to the use of common stock.
Financial leverage magnifies both profits and losses.
Increasing financial leverage will always increase the earnings per share.
(TCO 3) A 10-year bond pays 11 percent interest on a $1000 face value annually. If it currently sells for $1,195, what is its approximate yield to maturity? (Points : 4)
9.33%
7.94%
12.66%
8.10%
Please show how answers were calculated.
Explanation / Answer
Financial leverage magnifies both profits and losses. Basically you're buying on margin = I get let's say 10x the shares without buying on margin. So 10x the profit or loss. (really more than 10x the loss due to interest and less than 10x the profit but you get the idea). N=10 I=0 PV=-1195 PMT=110 FV=1000 I get I=8.08 so I guess D.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.