Question

Derek has liquid assets of $4,450 and he saves $615 a month. His current liabilities are equal to $1,750 and monthly credit payments of $425. Derek’s gross income is $5,900 each month and a take-home pay of $4,775. What is Derek’s debt-payments ratio?

Answer 1

Derek's debt-payments ratio is calculated by dividing his monthly credit payments ($425) by his take-home pay ($4,775). This results in a ratio of 0.089 or 8.9%, indicating a healthy financial state as it is below the recommended maximum of 20%.

Step-by-step explanation:

Derek’s debt-payments ratio is a tool used to assess his financial health by comparing the amount of money he owes each month to his take-home pay. To calculate this ratio, we would take Derek's monthly credit payments and divide them by his take-home pay. Thus, the calculation for Derek’s debt-payments ratio is:

Monthly Credit Payments / Take-Home Pay = $425 / $4,775 = 0.089 or 8.9%

This means that 8.9% of Derek's monthly take-home pay goes towards credit payments, which is under the recommended maximum of 20%. Having a debt-payments ratio under this threshold generally indicates good financial health and that Derek is managing his credit responsibly.

Answer 2

7.20 %

Step-by-step explanation:

Debt to income ratio is a measure of an individual's monthly debt repayment ability. The ratio is used in assessing the individual capability of absorbing more debts.

It is calculated by the formula.

Debt to income ratio = Total of Monthly Debt Payments​​/Gross monthly income x 100.

Total monthly debt is the aggregate or all debts payable on a monthly basis.

Gross income is the income before any deductions.

For Derek, gross income =$5900

Monthly debts =monthly credit card of $425

DTI= $425/ $ 5900 X 100

=0.0720 X 100

=7.20 %