Anthony Newton wants to buy a new sail boat. He makes a down payment of $10,000 which represents 20% of the value of the sail boat he is purchasing. In which way is Anthony reducing his lender's risk?
A) He is sharing the interest rate risk with his lender.
B) He is pledging valuable assets that can be seized if the loan is not repaid.
C) He is taking a larger stake in the asset he is purchasing.
D) He is repaying the loan over a faster period of time.
E) None of these.

Question

Quizplus · Accepted Answer

By making a larger down payment of 20%, Anthony is reducing the lender's risk because he has taken a larger stake in the asset he is purchasing. This means that if Anthony defaults on the loan and the lender has to repossess and sell the boat, there is a higher likelihood that the lender will be able to recover the full amount owed.

Anthony Newton Wants to Buy a New Sail Boat