Question

In: Finance

10. Louise McIntyre’s monthly gross income is $2,000. Her employer withholds $400 in federal, state, and...

10.

Louise McIntyre’s monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 each month for her IRA. Her monthly credit payments for VISA and MasterCard are $35 and $30, respectively. Her monthly payment on an automobile loan is $285.

a.	What is Louise's debt payments-to-income ratio? (Enter your answer as a percent rounded to 2 decimal places.)

Debt payments-to-income ratio

%

Expert Solution

While calculating debt to income ratio, debt includes all the monthly recurring debt payments and the same is divided by gross income before tax. Therefore debt to payment ratio =

Louise's Income

Louise's gross income - $2,000

+ federal, state and local tax - $400

+ Social security tax - $160

+ contribution to IRA - $80

Gross monthly Income = $2.640

Louise's Debt payments

Visa Credit Payment: $35

Master card Credit payment: $30

Automobile loan payment ; $285

Total monthly debt payment = $350

Debt payment to income ratio = Monthly debt payment / gross pre-tax income

= $350 / $2,640 * 100

= 13.25 %

jeff jeffy answered 8 months ago

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