Chapter 1, Problem 56SGR

To determine

To calculate: The debt-to-income ratio of Mateo. Also determine if he will qualify for loan provided debt-to-income ratio should be less than 0.35.

  $\begin{array}{ccc}\text{Type of Debt}& \text{Expenses}& \text{Salary}\\ \text{Rent}& 1850& 5673\\ \text{Car Payment}& 200& \\ \text{Credit Card}& 50& \\ \text{Student Loan}& 100& \end{array}$

Answer to Problem 56SGR

The debt-to-income ratio of Mateois $0.39$ . He will not qualify for the loan.

Explanation of Solution

Given information:

The monthly expenses of Mateo is provided below,

  $\begin{array}{ccc}\text{Type of Debt}& \text{Expenses}& \text{Salary}\\ \text{Rent}& 1850& 5673\\ \text{Car Payment}& 200& \\ \text{Credit Card}& 50& \\ \text{Student Loan}& 100& \end{array}$

Formula used:

The debt-to-income ratio is the total expenses divided by the salary of a person.

Calculation:

Consider the monthly expenses of Mateo that is provided below,

  $\begin{array}{ccc}\text{Type of Debt}& \text{Expenses}& \text{Salary}\\ \text{Rent}& 1850& 5673\\ \text{Car Payment}& 200& \\ \text{Credit Card}& 50& \\ \text{Student Loan}& 100& \end{array}$

Recall that the debt-to-income ratio is the total expenses divided by the salary of a person.

Add up all the expenses provided in the table,

Therefore, expenses E is,

  $\begin{array}{c}E=1850+200+50+100\\ =2200\end{array}$

And salary of Mateo is $S=5673$ .

Compute the debt-to-income ratio. That is divide the expenses by salary,

  $\begin{array}{c}\text{Debt-to-income ratio}=\frac{2200}{5673}\\ =0.3878\\ \approx 0.39\end{array}$

According to the question Mateo will qualify for loan if his debt-to-income ratio is less than $0.35$ .

Since, his debt-to-income ratiois $0.39$ , he will not qualify for the loan.

Thus, the debt-to-income ratio of Mateo is $0.39$ . He will not qualify for the loan.