What is one key benefit of using financial leverage?

Using financial leverage is primarily advantageous because it allows investors to amplify their potential returns by employing borrowed funds to increase their investment capacity. When an investor uses leverage, they can control a larger amount of assets than they could solely with their own capital. This can lead to a higher return on equity if the investments perform well since any profits generated on the total investment are shared between the investor's equity and the borrowed funds, effectively enhancing the overall yield.

For instance, if an investor borrows money to buy an asset, any increase in the asset's value or income generated from it primarily benefits the investor once the debt obligations are met. This characteristic of leveraging can significantly enhance the returns on an investment compared to just using equity alone.

The other options do not accurately reflect the nature of financial leverage. It does not eliminate investment risks or guarantee returns; in fact, it can increase potential risk since leveraging can amplify losses just as easily as it can amplify gains. Additionally, while some forms of leverage may require minimal collateral, many loans or leveraged transactions typically require collateral to secure the borrowed amount. Understanding these nuances is crucial for evaluating the use of financial leverage for investment strategies effectively.