• Card 93 / 100: If a corporation is highly leveraged, will its stock be more likely to appeal to a conservative or an aggressive investor?

    Answer:
    The "correct" answer is the aggressive investor. In reality even a conservative investor might own a small portion of a highly leveraged company, so long as the investor diversifies his holdings across many corporations. But in this basic question we are just trying to get the student to understand that—other things equal—more leverage tends to magnify potential gains and potential losses.

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Capitalism: The Market Economy

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Attribution:  Dr. Robert P. Murphy, Lessons for the Young Economist. (Mises Institute), http://mises.org/document/6215/Lessons-for-the-Young-Economist (Accessed 04 April, 2014). License: Creative Commons BY
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