What does leverage mean in investment terms?

In investment terms, leverage refers to the use of borrowed funds to amplify potential returns on an investment. It allows investors to control a larger position in an asset than they could with their own capital alone. For instance, if an investor uses leverage to invest in a property or stocks, they can borrow money to increase the size of their investment. This means that any gains made from the investment are calculated on a larger amount, potentially leading to higher profits compared to using only their equity.

However, it's important to remember that while leverage can amplify returns, it also increases risk. If the investment performs poorly, the losses are also magnified, which could exceed the initial investment and result in significant financial consequences.

The other options do not accurately capture the essence of leverage. Using equity to purchase additional assets does not involve borrowing and thus does not reflect the concept of leverage. Investing in low-risk securities only and timing the market for maximum profit are strategies related to investment but do not define leverage specifically. Therefore, the definition that identifies the use of borrowed funds to enhance potential returns is the most accurate description of leverage.