Microeconomics 6th Edition by Robert Hall, Shirley Kuiper, Marc Lieberman

Exercise 8

A homeowner is said to be "under water" if he or she owes more on the mortgage than the home is worth. Suppose someone bought a home for $300,000 with a $60,000 down payment,and took out a mortgage loan for the rest. A few years later,the value of the home has fallen by 15%,but the amount owed on the home has not changed.
a. In this example,how much was borrowed to buy the home?
b. What was the leverage ratio when the home was first purchased?
c. After the home drops in value,is the homeowner under water?
d. Answer the three questions above again,this time assuming that the down payment was only $30,000.
e. Based on your answers above,when home prices are falling,what is the general relationship between the degree of leverage on a home and the likelihood that the owner will end up "under water" on the home?