You are buying a house and considering the following financing arrangements:

No Leverage: Buy a house for $100,000 cash (no leverage), raise value by $10,000.

You made a 10% ROI ($10,000/$100,000) on your $100,000 investment.

Higher Leverage: Buy a house with a $20,000 down payment. You invested 20%, and the bank financed 80% (higher leverage). You made a 50% ROI

($10,000/$20,000) on your $20,000 investment.

1. Suppose you buy a house with a 20% down payment of $20,000 and then sell it for $150,000. What would be your ROI?

2. What would be your ROI on that same investment if you used no leverage?