The Biggest Mistake Students Make With Leverage
Struggling with Leverage? Here is the no-BS guide to understanding it, complete with real-world examples and study shortcuts.
D
David Kim · Curriculum Designer
Are you consistently losing points on Leverage because of ignoring bankruptcy risk when using debt? If so, you're making the exact same error as 80% of your class.
Did you make this error?
- The Trap: ignoring bankruptcy risk when using debt
- The Proof: Read this scenario: Debt magnifies returns. If you use 10x leverage and the asset goes up 10%, you double your money. If it goes down 10%, your equity is completely wiped out.
If your logic doesn't match the proof above, you've fallen for the trap. Erase it and start over.
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