Question

Jarrod is a college student. All of Jarrod's disposable income is used to pay his college-related expenses. While he has no liabilities (Jarrod is on a scholarship), he does have a credit card that he typically uses for emergencies. He and his friend went on a shopping spree in New York City costing $2,000, which Jarrod charged to his credit card. Jarrod has $20 in his wallet, but his bank accounts are empty. Jarrod has an old TV worth about $100. Jarrod's other assets total about $150.
What is Jarrod's debt-to-asset ratio? What does this indicate about Jarrod's financial position?

Jarrod's debt-to-asset ratio is: (Select the best answer below.)

A. 74.07 percent, which indicates that if Jarrod loses his job, he would not be able to pay off his debt.
B. 0.74 percent, which indicates that if Jarrod loses his job, he would not be able to pay off his debt.
C. 0.0014 percent, which indicates that if Jarrod loses his job, he would not be able to pay off his debt.
D. 740.74 percent, which indicates that if Jarrod loses his job, he would not be able to pay off his debt.

Answer 1

Answer:

D) 740.74 percent, which indicates that if Jarrod loses his job, he would not be able to pay off his debt.

Explanation:

Jarrod's total debt = $2,000 (credit card balance)

Jarrod's total assets = $20 (money in his pocket) + $100 (old TV) + $150 (other miscellaneous) = $270

Jarrod' debt to asset ratio = $2,000 / $270 = 7.4074 x 100 = 740.74%

I'm not sure if Jarrod will be able to pay his debt even if he doesn't loss his job since he either doesn't earn a lot or his expenses are too high.