Question

‘Increase in the profit earned by the equity shareholders due to the presence of fixed financial charges like interest’ is called ______.

Options

• Financial planning

• Dividend decision

• Financing decision

• Trading on equity

Answer 1

‘Increase in the profit earned by the equity shareholders due to the presence of fixed financial charges like interest’ is called Trading on equity.

Explanation:

Trading on equity involves employing fixed-cost financial instruments, such as debt, to increase returns for equity shareholders. When a company borrows funds at a fixed interest rate and generates a higher return on investment, equity shareholders benefit from the excess earnings.