using the 28/36 ratio, determine the maximum allowable recurring debt for someone with a monthly income of…

using the 28/36 ratio, determine the maximum allowable recurring debt for someone with a monthly income of $4,850.\na. $388\nb. $776\nc. $970\nd. $1,358\nplease select the best answer from the choices provided\no a\no b\no c\no d

using the 28/36 ratio, determine the maximum allowable recurring debt for someone with a monthly income of $4,850.\na. $388\nb. $776\nc. $970\nd. $1,358\nplease select the best answer from the choices provided\no a\no b\no c\no d

Answer

Explanation:

Step1: Understand the 28/36 ratio

The 28/36 ratio means that a household should spend a maximum of 28% of its gross monthly income on housing - related expenses and a maximum of 36% on total debt (including housing - related expenses). Recurring debt is part of the total debt. We are interested in the non - housing part of the 36% ratio. So first, we find 36% of the monthly income. $0.36\times4850$

Step2: Calculate 36% of the income

$0.36\times4850 = 1746$ Then we find 28% of the income for housing - related expenses. $0.28\times4850=1358$

Step3: Calculate recurring debt

Recurring debt = Total debt limit - Housing - related debt limit. So, $1746−1358 = 388$

Answer:

A. $388$