Multiple choice

Use of fixed interest securities in the capital structure is called

  1. operating leverage

  2. financial leverage

  3. overall leverage

  4. none of the above

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Financial leverage refers to the use of fixed-income securities like bonds and debentures in a company's capital structure. By using debt financing, a firm can magnify returns to shareholders while also increasing risk, as fixed interest obligations must be met regardless of profitability.