Suppose Joe and Mike purchase identical houses for $200,000. Joe makes a down payment of $40,000, while

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Suppose Joe and Mike purchase identical houses for $200,000. Joe makes a down payment of $40,000, while Mike only puts down $10,000. Assuming everything else is equal, who is more highly leveraged? If house prices in the neighborhood immediately fall by 10 percent (before any mortgage payments are made), what would happen to Joe’s and Mike’s net worth?

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Ali Khawaja

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