Question 25 • 26-27 Ignite Technical Math-Financial Math - MA2007
John just moved out of state and, in doing so, had to take a salary cut. At his previous job, his annual salary was $47,000 and his monthly expenses included a $850 rent payment, a $325 car payment, and $375 in minimum credit card payments. His new job has a salary of $43,500. He has the same car payment and minimum credit card payments, but his new apartment costs a mere $625 per month. How did John's move affect his debt-to-income (DTI) ratio?
Answer
A
John's DTI ratio decreased by 3%.
B
John's DTI ratio increased by 3%.
C
John's DTI ratio decreased by 9%.
D
John's DTI ratio increased by 9%.
Explanation
Include the monthly rent, car payment, and minimum credit card payments in the monthly obligations. Before the move, those total $1,550, and $1,550 ÷ ($47,000 ÷ 12) is about 39.6%. After the move, they total $1,325, and $1,325 ÷ ($43,500 ÷ 12) is about 36.6%. The DTI ratio therefore decreased by about 3 percentage points, so choice A is correct.
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