Question

Louise Gendron’s monthly gross income is $3,600. Her employer withholds $540 in federal and provincial income taxes and $170 in Canada Pension Plan contributions per month. Louise contributes $280 per month to her RRSP. Her monthly credit payments for Visa and MasterCard are $73 and $53, respectively. Her monthly payment on an automobile loan is $375.

a. What is Louise’s debt-payments-to-income ratio? (Round your answer to 2 decimal places. Omit "%" sign in your response.)

Debt payments–to–income ratio             %

b. Is Louise living within her means?

• Yes

• No

Answer 1

Debt incom ratio = add up all your monthly debt payments and divide them by gross monthly income

Gross monthly income = the amount of money you have earned before your taxes and deductions

Gross monthly income = $ 3,600

monthly debt payments = 73+53+375 = $ 501

Debt income ratio = 501/3600 = 13.92%

Yes , Louise is within her means . The ratio shows that borrowers with a lower debt to income ratio this means more likely run into less making monthly payments.