What term describes the act of applying a small investment to yield a high return?

What term describes the act of applying a small investment to yield a high return?

• A. Licensing
• B. Loan
• C. Leverage
• D. Liaison

Answer: (C)

The concept tested here is leverage—the use of borrowed funds or other people’s money to expand the potential return on an investment. When you commit a small amount of your own capital and finance the rest with debt or other financial arrangements, you can magnify gains if the investment performs well. This approach is common in business and investing because it can boost returns relative to the equity put in, though it also increases risk if the investment underperforms. Licensing involves giving someone rights to use IP or a product, which is not about amplifying returns from a small upfront investment. A loan is money borrowed that must be repaid and doesn’t by itself magnify returns; it’s a financing tool, not the mechanism to boost returns. A liaison is a person who facilitates relationships or communications, not a financial strategy. Leverage uniquely describes using a smaller initial outlay to achieve a higher overall return.

The concept tested here is leverage—the use of borrowed funds or other people’s money to expand the potential return on an investment. When you commit a small amount of your own capital and finance the rest with debt or other financial arrangements, you can magnify gains if the investment performs well. This approach is common in business and investing because it can boost returns relative to the equity put in, though it also increases risk if the investment underperforms.

Licensing involves giving someone rights to use IP or a product, which is not about amplifying returns from a small upfront investment. A loan is money borrowed that must be repaid and doesn’t by itself magnify returns; it’s a financing tool, not the mechanism to boost returns. A liaison is a person who facilitates relationships or communications, not a financial strategy. Leverage uniquely describes using a smaller initial outlay to achieve a higher overall return.