Answer: 3.

### Explanation The leverage ratio is defined as the ratio of the total value of the position to the equity investment supporting it. Initially, the leverage ratio is calculated as: - **Initial leverage ratio**: Total value / Equity = 1 / 0.5 = 2. After a 25% decline in the security's price: - **New market value**: 1 - 0.25 = 0.75 (75% of the original value). - **Impact on equity**: The equity reduces by twice the percentage decline due to the initial leverage (2 * 25% = 50%). Therefore, the remaining equity is 50% - 50% = 25% of the original value. - **Updated leverage ratio**: New market value / New equity = 0.75 / 0.25 = 3. Option **B (3)** is correct because it reflects the updated leverage ratio after the price decline. Option A (2) represents the initial leverage ratio, and Option C (4) incorrectly uses the decline percentage as the denominator for the leverage calculation.

Author: LeetQuiz Editorial Team