The use of borrowed money to increase the return on an investor's capital. Suppose an investor is able to borrow 50% of the funds required for a $10,000 investment that returns 16% annually. If interest on the loan is 6%, the investor can earn $1,600 ($10,000 at 16%) minus interest of $300 ($5,000 at 6%), or $1,300 on an investment of $5,000 ($10,000 minus $5,000 borrowed), for a return of 26% ($1,300/$5,000).
