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 James 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 the other answers.

Question

Quizplus · Accepted Answer

By making a larger down payment, Anthony is taking a larger stake in the asset, which reduces the lender's risk as there is more equity in the asset.

Anthony Newton Wants to Buy a New Sail Boat