Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The formula is: Debt service-to-income ratio = Annual Debt Payments / Annual Gross Income Note: A ratio of 0.36 (36%) or less indicates that gross
The formula is: Debt service-to-income ratio = Annual Debt Payments / Annual Gross Income Note: A ratio of 0.36 (36%) or less indicates that gross income is adequate to make debt repayments, including housing costs, and implies that one has some flexibility in budgeting for other expenses. This ratio should decrease as you grow older. 1. Calculate the ratio for the family units below and determine how well they are servicing the debt. Also, analyze whether each could take on an additional $10,000 annual payment for a new summer home they are considering (income remains the same). a. Smith Family: $16,400 annual debt repayments and $66,000 annual gross income b. Jones Family: $27,500 annual debt repayments and $110,000 annual gross income 2. Milton Lumberg, a political science major from Phoenix, Arizona, graduated from college a year ago and is having a terrible time with his budget. Milton has a regular job and no really large bills, but he likes to spend. He exceeds his budget every month, and his credit card balances are increasing. Identify three things Milton needs to consider and explain how each one could help him gain control of his finances
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started