Explain the example in your own words and check the calculation.
Leverage is increasing exposure using debt or another mechanism.
It can magnify both gains and losses relative to the money you invested yourself. The debt and interest do not disappear when the asset falls. In some situations you can lose more than your equity and be required to add money or sell. The lesson demonstrates risk; this is not leveraged trading.
You have 100 ₪, you borrow another 100 and invest 200. After a 25% drop the asset is worth 150. After repaying the 100 debt there remain 50, before interest: a 50% loss on your money.
Explain the example in your own words and check the calculation.
An exercise uses 100 of own money plus a loan of 100 to buy an asset worth 200. A 10% fall leaves an asset worth 180. Subtracting the debt of 100 leaves equity of 80: a 20% loss before interest and costs. The debt does not disappear when the asset falls. This explains the mechanism only; the exercise does not suggest borrowing to invest.
Concepts that help you compare
Loan: the money now, the repayment later
A loan is money you receive with an obligation to repay according to agreed terms. The principal is the amount borrowed. Interest is part of the cost of credit, and there can be additional fees. Check the total repayments, the loan period, the type of interest and indexation. A smaller monthly payment is not necessarily a cheaper loan.
Comparison example: For illustration only: a loan of 1,000 ₪ for one year at a simple interest rate of 10%, with the entire repayment at the end of the year, requires 1,100 ₪ before additional costs.
Risk is the possibility that the outcome will be different from expected, including loss. Investments with higher potential returns often carry higher risk. Money held without change in the number of shekels is also exposed to erosion of purchasing power. It is important to understand when you will need the money and how much uncertainty you can bear.
Comparison example: Money for a trip in a week serves a different purpose than money for a distant goal.