using the 28/36 ratio, determine the maximum allowable recurring debt for someone with a monthly income of…

using the 28/36 ratio, determine the maximum allowable recurring debt for someone with a monthly income of $4,850. a. $388 b. $776 c. $970 d. $1,358 please select the best answer from the choices provided

using the 28/36 ratio, determine the maximum allowable recurring debt for someone with a monthly income of $4,850. a. $388 b. $776 c. $970 d. $1,358 please select the best answer from the choices provided

Answer

Explanation:

Step1: Understand the 28/36 ratio

The 28/36 ratio is a common rule - of - thumb in finance. The 36 part refers to the maximum percentage (36%) of your gross monthly income that can be used for total debt obligations, and the 28 part refers to housing - related debt. Recurring debt is part of the non - housing debt. First, find 36% of the monthly income. Let the monthly income be $I = 4850$. The total debt limit is $0.36\times I$.

Step2: Calculate the total debt limit

$0.36\times4850=1746$.

Step3: Assume housing - related debt is at the 28% limit

The housing - related debt limit is $0.28\times4850 = 1358$.

Step4: Calculate the maximum allowable recurring debt

The maximum allowable recurring debt is the total debt limit minus the housing - related debt limit. So, $1746−1358 = 388$.

Answer:

A. $388