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Comparative Risk Analysis of Home Financing Strategies
Two individuals, Alex and Ben, each have $100,000 in savings and are planning to buy identical houses priced at $500,000.
- Alex plans to use the full $100,000 as a down payment, taking out a $400,000 loan.
- Ben plans to use only $50,000 for a down payment, taking out a $450,000 loan, and will invest the other $50,000 elsewhere.
Focusing solely on their housing investment, explain which individual is exposed to greater financial risk and why a 10% decrease in the house's value would have a more severe impact on their initial investment.
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