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# BUSN380 Week 3 TCO 3 Problem Set 3 - Cost of Credit

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Problem Set 3

1.   Louise McIntyre’s monthly gross income is \$2,000. Her employer withholds \$400 in federal, state, and local income taxes and \$160 in Social Security taxes per month. Louise contributes \$80 per month for her IRA. Her monthly credit payments for VISA, MasterCard, and Discover card are \$35, \$30, and \$20, respectively. Her monthly payment on an automobile loan is \$285. What is Louise’s debt payments-to-income ratio? Is Louise living within her means?

Debt Payments-to-Income Ratio = Monthly Credit Payments /Net Monthly Income

ANS.

\$2000 – (400+160+80) = \$1360

\$1360 – (35+30+20+285) = \$370

Debt Payments-to-Income Ratio = 370/1360 = 0.272 = 27.2%

At 27% Louise is spending 7% over the recommended 20% of net income that she should be spending on credit payments, so she IS NOT living within her means.

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## [Solved] BUSN380 Week 3 TCO 3 Problem Set 3 - Cost of Credit

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Problem Set 3 1. Louise McIntyreâ€™s monthly gross income is \$2,000. Her employer withholds \$400 in federal, state, and local income taxes and \$160 in Social Security taxes per month. Louise contributes \$80...
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