Using the 28/36 ratio, determine the maximum allowable recurring debt for someone with a monthly income of $4,850.
We are given a monthly income of \(\$4,850\) and a debt-to-income ratio of \(\frac{28}{36}\). The objective is to calculate the maximum allowable recurring monthly debt based on this ratio and select the correct option from the given choices. The ratio \(\frac{28}{36}\) can be simplified by dividing both the numerator and the denominator by their greatest common divisor, which is 4: \(\frac{28 \div 4}{36 \div 4} = \frac{7}{9}\).
To find the maximum allowable monthly recurring debt, we multiply the monthly income by the given ratio:
\[\text{Debt} = \text{Monthly Income} \times \text{Ratio} = 4850 \times \frac{28}{36}\]
Simplifying the ratio to \(\frac{7}{9}\), the calculation becomes:
\[\text{Debt} = 4850 \times \frac{7}{9} = \frac{33950}{9} \approx 3772.22\]
The calculated value is approximately \(\$3,772.22\). Looking at the provided options:
None of the provided options match the result of \(\$3,772.22\). Re-evaluating the input data or the options suggests there might be a typo in the provided options or the ratio interpretation. Assuming the ratio was meant to be interpreted differently or the options are based on a different calculation, we note that \(\$3,772.22\) is the mathematical result for the given parameters. However, since we must choose the best answer and none fit, we clarify the result. Wait, checking if 388, 776, 970, 1358 are fractions of the income:
\(\frac{388}{4850} \approx 0.08\)
\(\frac{776}{4850} = 0.16\)
\(\frac{970}{4850} = 0.2\)
\(\frac{1358}{4850} \approx 0.28\)
The ratio \(\frac{28}{100} = 0.28\) corresponds to \(\$1,358\). It is highly likely the ratio intended was 28% (or \(\frac{28}{100}\)) rather than \(\frac{28}{36}\). Given the options, \(\$1,358\) is the most logically derived answer under the assumption of a 28% ratio.
Financial institutions often use debt-to-income ratios to assess a borrower's ability to manage monthly payments. For example, if you are applying for a mortgage, a lender might require that your total recurring monthly debt payments do not exceed a certain percentage of your gross monthly income. By calculating this, you can better understand your financial health and borrowing capacity.