Suppose you buy a house for $250,000. One year later, the market price for the house has fallen to $200,000. What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?
What will be an ideal response?
The market price has fallen by $50,000, so with a 10 percent down payment, your return on investment is -$50,000 divided by the 10 percent down payment of $25,000. or -50,000/ $25,000 = -2, which means you lost 200 percent.
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