Question

Jim has an annual salary of $96,000. His monthly expenses include a $2,500 mortgage payment, a $250 lease payment, $500 in minimum credit card payments, and a $425 payment on his speed boat. He also receives $1,200 in interest from his savings and other accounts each month. Calculate Jim’s DTI (debt-to-income) ratio.

Answer 1

$96,000 : 12 = $8,000
His monthly income: $8,000 + $1,200 = $9,200
$2,500 + $250 + $500 + $425 = $3675 ( monthly debt )
DTI ratio: 3675 / 9200

Answer 2

39.95%.

Explanation:

We have been given that Jim has an annual salary of $96,000.

`\text{Debt to income ratio}=\frac{\text{Total annual expenses}}{\text{ Total annual income}}* 100`

First of all we will find Jim's total monthly expenses by adding all his monthly expenses.

`\text{Jim's total monthly expenses}=\$2500+\$250+\$500+\$425`

`\text{Jim's total monthly expenses}=\$3675`

Now let us find Jim's annual expenses by multiplying his monthly expenses by 12.

`\text{Jim's total annual expenses}=\$3675* 12`

`\text{Jim's total annual expenses}=\$44,100`

As Jim receives $1,200 in interest from his savings and other accounts each month, so amount received in interest per year will be 12 times 1200.

`\text{Amount received from interest per year}=12* \$1200`

`\text{Amount received from interest per year}=\$14400`

`\text{Jim's total annual income}=\$14,400+\$96,000`

`\text{Jim's total annual income}=\$110,400`

Upon substituting Jim's total annual expenses and income in debt to income ratio we will get,

`\text{Jim's DTI}=(\$44,100)/(\$110,400)* 100`

`\text{Jim's DTI}=0.399456521739* 100`

`\text{Jim's DTI}=39.9456521739\%\approx 39.95%`

Therefore, Jim's debt-to-income ratio is 39.95%.