1. Taking Out a Motorcycle Loan. Kevin Jones, of Elon, North Carolina, is single and recently graduated from law school. He is employed an earns $9,000 per month, an awesome salary for someone only 26 years old. He also has $1,800 withheld for federal income tax, $500 for state income taxes, $700 for Medicare and Social Security taxes, and $230 for health insurance every month. Kevin has outstanding student loans of almost $80,000 on which he pays about $900 per month and a 0% loan on an auto loan payment of $300 on a Ford Fusion Hybrid he purchased new during law school. He is considering taking out a loan to buy a Kawasaki motorcycle.

Monthly gross pay

Federal withholding tax (-)

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Medicare and Social Security taxes (-)

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Monthly payment Student loans Auto loan (+)

Motorcycle loan (+)

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(a) What is Kevin's debt payments-to-disposable income ratio?

Total monthly debt payments

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Debt payments-to-disposable income ratio (=)