Mortgages increase the risk faced by homeowners.

1. Explain how. The mortgage is leverage for the homeowner, and leverage a. increases or b.decrease risk.

What happens to the homeowners risk as the down payment on the house rises from 7 percent to 60 percent?

Instructions: Enter your responses rounded to one decimal place.

2. With a down payment of 7 percent, the leverage ratio is ?

3. With a down payment of 60 percent the leverage ratio is ?

4. A down payment of 60 percent a. reduces or b. decrease the leverage ratio by a factor of ?? relative to a down payment of 7 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)