Louise's monthly gross income is $2,700. Her employer withholds $540 in federal, state, and local income taxes and $216 in Social Security taxes per month. Louise contributes $108 per month for her IRA. Her monthly credit payments for Visa, MasterCard, and Discover cards are $36, $39, and $21, respectively. Her monthly payment on an automobile loan is $289. (a) What is Louise's debt payments-to-income ratio? (Enter your answer as a percent rounded to 1 decimal place.) Debt payments-to–income ratio % (b) Is Louise living within her means? O Yes O No
Louise's monthly gross income is $2,700. Her employer withholds $540 in federal, state, and local income taxes and $216 in Social Security taxes per month. Louise contributes $108 per month for her IRA. Her monthly credit payments for Visa, MasterCard, and Discover cards are $36, $39, and $21, respectively. Her monthly payment on an automobile loan is $289. (a) What is Louise's debt payments-to-income ratio? (Enter your answer as a percent rounded to 1 decimal place.) Debt payments-to–income ratio % (b) Is Louise living within her means? O Yes O No
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Louise's monthly gross income is $2,700. Her employer withholds $540 in federal, state, and local income taxes and $216 in Social
Security taxes per month. Louise contributes $108 per month for her IRA. Her monthly credit payments for Visa, MasterCard, and
Discover cards are $36, $39, and $21, respectively. Her monthly payment on an automobile loan is $289.
(a) What is Louise's debt payments-to-income ratio? (Enter your answer as a percent rounded to 1 decimal place.)
Debt payments-to-income ratio
%
(b) Is Louise living within her means?
O Yes
O No
Expert Solution
Step 1: Introduction
Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow.
Formula to calculate debt-to-income ratio:
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