Mortgages increase the risk faced by homeowners.
(a) Explain how. The mortgage is leverage fo...
Business, 02.03.2020 19:29 Demarcusclincy
Mortgages increase the risk faced by homeowners.
(a) Explain how. The mortgage is leverage for the homeowner, and leverage risk. (b) What happens to the homeowner’s risk as the down payment on the house rises from 15 percent to 50 percent?
Instructions: Round your answers to 1 decimal place.
(c) With a down payment of 15 percent, the leverage factor is .
(d) With a down payment of 50 percent, the leverage factor is .
A down payment of 50 percent the leverage ratio by a factor of relative to a down payment of 10 percent. (Hint: Refer to the Tools of the Trade: The Impact of Leverage on Risk; leverage ratio = cost of the investment/owner's contribution to the purchase)
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