Leverage Effect in Financing

This lecture covers the concept of leverage effect in financing, illustrating how borrowing money to invest can amplify returns. It explains the calculation of leverage, the impact of varying discount rates on bond valuation, and the sensitivity analysis of leverage effect. The instructor demonstrates how to calculate leverage not only based on the required return for an investment but also on a normal interest rate corresponding to the risk class. Through examples and calculations, the lecture shows the implications of leverage on investment decisions and the importance of considering different interest rates when evaluating leverage.