1. Justine buys a $500,000 home by making a down payment of $25,000 and borrowing the rest. Her owner’s equity is *

a. $475,000.

b. $250,000.

c. $100,000.

d. $25,000.

e. None of the above.

2. Her leverage ratio is *

a. 15.

b. 18.

c. 19.

d. 20.

e. None of the above.

3. In general, higher leverage ratios are _____________ than lower leverage ratios. *

a. Riskier

b. Less risky

4. An insolvent firm has *

a. Equity that exceeds its assets.

b. Debts that exceed its assets.

c. Equity that exceeds its debts.

d. Assets that exceed its debts.

e. Debts that exceed its equity.

5. All of the following are shadow banks except *

a. Hedge funds.

b. Money market funds.

c. Commercial banks.

d. Investment banks.

e. b and c only.

6. Leading up to the 2008 financial crisis, mortgage-backed securities were purchased by *

a. American pension funds.

b. Dentists in Germany.

c. Banks.

d. a and b only.

e. a, b, and c.