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I'm reading The Intelligent Investor and quote:
In sum it appears that a significant part of the 11% being earned on corporate equities as a whole is accomplished by the use of a large amount of new debt costing 4% or less after tax credit
How could the earnings come from debt?
How could the earnings come from debt?
Suppose you borrow money and use that money to start a business or expand an existing business. If that money was used to earn more than the interest costs of the borrowing, it can be said that the "earnings came from debt". The debt helped to produce additional earnings.
The interest rate is a percentage that the borrower pays to the lender for borrowing money. Interest rates are generally higher on loans such as mortgages, car loans, and student loans. The interest rates on these types of loans are fixed and remain unchanged over the life of the loan.
Debt is an agreement in which one party, who has borrowed money or goods from another, agrees to repay the debt with periodic payments of interest and principal according to a set schedule. Debt can be secured or unsecured. Secured debt requires collateral in order to make it possible for creditors to seize assets if payments are not made. Unsecured debt does not require collateral but may require a co-signer who agrees in advance that they will take responsibility for making payments if the debtor defaults.
The earnings come from debt when lenders charge borrowers an interest rate that exceeds what they can earn investing their capital elsewhere in society.
