Using the 28/36 ratio, determine the maximum allowable recurring debt for someone with a monthly income of $3,200.
The problem asks us to determine the maximum allowable recurring debt for an individual with a monthly income of \(\$3,200\), using the standard financial "28/36" rule.
The "28/36" rule is a financial benchmark used to ensure individuals do not overextend themselves financially:
Given the individual's monthly income of \(\$3,200\), we need to calculate the maximum allowable amount for housing debt, which is identified by the 28% threshold in the rule.
To find the maximum allowable housing debt, we calculate 28% of the gross monthly income of \(\$3,200\).
The formula is:
\[\text{Maximum Housing Debt} = 0.28 \times \text{Gross Monthly Income}\]
Substituting the given values:
\[\text{Maximum Housing Debt} = 0.28 \times 3200 = 896\]
Thus, the maximum amount for housing-related expenses according to this rule is \(\$896\). Comparing this result with the provided options:
The calculated value aligns with option (d).
The calculation shows that the maximum amount the individual should allocate to housing costs under the 28% housing ratio is \(\$896\). Therefore, the best answer provided in the list is \(\$896\).
The final answer is \(\boxed{\$896}\).
When applying for a mortgage, lenders often use the "28/36" rule to assess your ability to repay a loan. For example, if you earn a gross monthly income of \(\$5,000\), the rule suggests your housing payments should ideally not exceed \(0.28 \times 5000 = \$1,400\), and your total debt payments should not exceed \(0.36 \times 5000 = \$1,800\). This helps you manage your budget and ensures your financial stability when taking on long-term debt commitments.