n NISM Certifications
XXI NISM Series XXI-A
Medium

The primary purpose of financial leverage is to:

Practice question from NISM XXI A for PMS - Mock Test 2 — bank. The correct answer is highlighted below with a full explanation.

Options

  1. A

    Reduce the cost of capital

  2. Increase the return to equity shareholders

    Correct answer

  3. C

    Decrease the risk of insolvency

  4. D

    Improve liquidity ratios

Why this is the answer

Leverage amplifies returns for equity holders when profits are positive.

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