Briefly explain the pros and cons of financial leverage. In other words, what are its benefits, and what are t

Question

Briefly explain the pros and cons of financial leverage. In other words, what are its benefits, and what are the costs that come along with those benefits?

Answer 1

Leverage involves risks. If you borrow money to invest you might be able to put down a small investment to control a large asset. On a personal level this could be a home. Put down $10,000 and buy a home worth $200,000 if the home doubles in price in you would make a 200,000 profit on your $10,000. On the other hand if you paid cash for the same house you would still profit $200,000 but the percentage wouldn't be as impressive.
You can do the same thing in the stock market buy on margin instead of buying 100 shares for cash put down the same money and buy 200 shares, you can gain or lose money twice as fast. In the great depression people were using only 10% their own money in the stock market so when the price fell even a little it wiped out a paper fortune and they couldn't cover their margin calls, their financial lives were ruined.
Sub prime borrowers are doing that now the house price falls and they have no equity so when they need to sell they ruin their financial lives.
Leverage is very powerful both for good and bad.

Answer 2

The State of Colorado is relatively making plans to furnish government suggestions for unlawful immigrants to attend college. Did the State of Colorado forget that those human beings should not be residing interior of u.s. interior the 1st place?