Today's date is December 31, 20XX. Bonita Zimmer has stopped by your office for her year-end annual financial planning review. The following narrative provides important details about Bonita.

Bonita just turned thirty years of age. She lives in a house that she purchased three years ago for $110,000, right before housing prices began to skyrocket in her area. She was fortunate to purchase the home with $18,000 in down payment money received from her father (who is married) and a loan for the remainder of the home price. She was able to obtain a 6.5 percent thirty-year mortgage.

Bonita is a hard worker and good saver. Over the past eight yearssince graduating from collegeshe has accumulated a nice-sized nest egg.Table I.1summarizes her asset and liability situation.

Table I.1.Bonita Zimmer's Assets and Liabilities

Bonita has been saving for an emergency fund. Her goal is to maintain a liquid account balance equal to six months of total expenses.Table I.2summarizes Bonita's income and expense situation. Note that Bonita lives in an income tax-free state.

Table I.2.Bonita Zimmer's Income and Expenses

Income or Expense

Amount (Yearly)

Income

Annual income

$55,000

Reinvested interest income

$400

Expenses

Mortgage payment

$6,978

Real estate taxes and insurance

$2,200

Utilities

$2,400

Groceries

$3,000

Dining out

$2,400

Credit card payments

$960

Car payments

$4,400

Gas

$900

Auto insurance

$1,200

Auto and household maintenance

$1,800

Entertainment

$3,200

Federal taxes

$6,540

FICA

$4,320

Personal care

$1,500

Clothing

$3,000

Charitable donations

$2,200

Gifts to others

$3,000

Miscellaneous expenses

$2,400

Reinvested interest

$400

Please use the information provided in the case narrative to answer the following case questions.

Bonita is concerned that she could be overextended on her monthly mortgage payment. Do you agree with her?

a.Yes, because her total debt-to-income ratio exceeds the accepted benchmark of 36 percent of gross income.

b.No, because her monthly housing cost-to-income ratio is less than the accepted benchmark of 28 percent of gross income.

c.Yes, because her monthly housing cost-to-income ratio is greater than the accepted benchmark of 28 percent of gross income.

d.No, because her monetary assets are greater than six months of total expenses, which allows her to overextend her monthly mortgage obligation.