Which of the following statements about the ‘Financial Leverage’ and ‘Borrowing to Invest’ sections of the lecture material are TRUE:

1. As long as the expected return on assets is greater than the cost of debt (interest rates), adding financial leverage to an investment magnifies both expected return on equity and also total risk of that equity.
2. An investor has a margin loan on an Exchange Traded Fund that tracks the ASX200 index. The value of the investment (asset) is $100,000 and they have a $50,000 margin loan. If the ASX200 were to suddenly fall in value by 30%, that investor would likely experience a margin call.