CBSE Class 12-commerce Answered
Trading on equity takes place when_______
a) ROI is less than rate of interest on debt.
b) ROI is more than the rate of interest on debt.
c)ROI is less than Return on Equity.
d)ROI is more than Return on equity.
Asked by navyanshastry | 04 Apr, 2020, 08:26: PM
Expert Answer
Trading on equity refers the financial process where higher returns are earned by the equity shareholders due to the presence of fixed financial charges payable towards the borrowed funds. When the rate of earning or Return on Investment (ROt) of a company is greater than the rate of interest on borrowed funds only then a company should opt for trading on equity.
Accordingly, option (b) ROI is more than the rate of interest on debt is the correct answer.
Answered by Surabhi Gawade | 07 Apr, 2020, 11:50: AM
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