Explanation
Trading on equity, which is also referred to as financial leverage occurs when a corporation uses bonds, other debt, and preferred stock to increase its earnings on its common stock.
Hence, option (A) is the correct answer.
Leverage means a business strategy of the Companies to increase the assets, cash flows, and returns, even losses can also be analyzed by using the strategy. There are two main types of leverage:-
1. Financial Leverage- A firm may borrow capital through issuing fixed securities or by borrowing money directly from a lender just to increase its financial leverage,
2. Operating Leverage- It is used to magnify cash flows and returns.
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