Final answer:
Jon can take on an additional $200 in monthly debt payments without exceeding a 40 percent debt-to-income ratio, as his gross annual income of $42,000 allows for a maximum of $1,400 per month in debt payments.
Step-by-step explanation:
To determine how much more Jon can take on in monthly debt payments without exceeding the 40 percent ratio, we first need to calculate 40 percent of his gross annual income. Since Jon earns $42,000 per year, we calculate 40 percent of this amount:
0.40 × $42,000 = $16,800 per year in debt payments.
To find out the monthly amount allowed, we divide the annual figure by 12 (the number of months in a year):
$16,800 / 12 = $1,400 per month
Jon currently has debt payments of $1,200 per month. To find out how much more he can take on in monthly debt payments without surpassing the 40 percent threshold, we subtract his current debt payments from the allowable amount:
$1,400 (allowable) - $1,200 (current) = $200
Jon can take on an additional $200 in monthly debt payments without going over the 40 percent debt to income ratio.