Question

John just moved out of state and, in doing so, had to take a salary cut. At his previous job, his annual salary was $47,000 and his monthly expenses included a $850 rent payment, a $325 car payment, and $375 in minimum credit card payments. His new job has a salary of $43,500. He has the same car payment and minimum credit card payments, but his new apartment costs a mere $625 per month. How did John's move affect his debt-to-income (DTI) ratio?
a. John's DTI ratio decreased by 3%.

b. John's DTI ratio increased by 3%.

c. John's DTI ratio decreased by 9%.

d. John's DTI ratio increased by 9%.

Answer 1

Answer:

Option A- John's DTI ratio decreased by 3%.

Step-by-step explanation:

Given : John just moved out of state and, in doing so, had to take a salary cut.

At his previous job, his annual salary was $47,000 and his monthly expenses included a $850 rent payment, a $325 car payment, and $375 in minimum credit card payments.

His new job has a salary of $43,500. He has the same car payment and minimum credit card payments, but his new apartment costs a mere $625 per month.

To find : How did John's move affect his debt-to-income (DTI) ratio?  

Solution :

His previous job salary is $47,000 and have monthly expenses

Rent payment = $850

Car payment = 325

Minimum credit card payment = $375

His DTI is sum of all expenses into 12 divided by his salary.

$P=\frac{(325+375+850)\times 12}{47000}$

$P=\frac{1550\times 12}{47000}$

$P=\frac{18600}{47000}$

$P=0.395$

DTI is in the percentage form.

Therefore, DTI of previous salary is 39.5% .......[1]

His new job salary is $43,500 and have monthly expenses

Rent payment = $625

Car payment = 325

Minimum credit card payment = $375

His DTI is sum of all expenses into 12 divided by his salary.

$N=\frac{(325+375+625)\times 12}{43500}$

$N=\frac{1325\times 12}{43500}$

$N=\frac{15900}{43500}$

$N=0.365$

DTI is in the percentage form.

Therefore, DTI of new salary is 36.5% ........[2]

from [1] and [2] DTI decreases.

Affect in his debt-to-income ratio is subtraction of [1] - [2]

Change = 39.5%-36.5% = 3%

Hence, Option A- John's DTI ratio decreased by 3%.

Answer 2

Answer:

A

Step-by-step explanation:

a. John's DTI ratio decreased by 3%.