What term describes when an investor uses borrowed funds to obtain a higher return?

The term that describes when an investor uses borrowed funds to obtain a higher return is leverage. Leverage allows investors to amplify their investment potential by using borrowed capital to increase the size of their investment. When an investor successfully leverages their funds, they can generate higher returns than they would achieve using only their own capital. This can significantly boost profits, especially in markets where asset values are increasing.

Using leverage involves taking on additional risk, as the investor must ensure they can generate enough return to cover the cost of the borrowed funds. However, if the investment performs well, the returns can exceed the cost of borrowing, leading to greater overall profits. In summary, leverage is a key financial strategy used by investors to enhance their potential returns by utilizing borrowed money.