Mortgages increase the risk faced by homeowners.

a$.$ Explain how.

The mortgage is leverage for the homeowner, and leverage

b$.$ What happens to the homeowner's risk as the down payment on the house rises from $2$ percent to $60$

percent?

Instructions: Enter your responses rounded to one decimal place.

With a down payment of $2$ percent, the leverage ratio is

With a down payment of $60$ percent, the leverage ratio is

A down payment of $60$ percent

$]$ the leverage ratio by a factor of

relative to a

down payment of $2$ percent. $($Hint: Refer to the Tools of the Trade: The Impact of Leverage on Risk;

Leverage ratio $=$ cost of the investment $\frac{?}{?}$ owner's contribution to the purchase$)$