Question

80. Car Payments. As a rule of thumb, debt pay-ments (other than mortgages) should be less than8% of a consumer's monthly gross income. Olivermakes $54,000 per year and has a $100 student-loan payment every month. What size car pay-ment can he afford?

Answer 1

Answer:

The maximum size of car payment he can afford is;

$\text{ \ 260 per month}$

Explanation:

Given that Oliver makes $54,000 per year.

His monthly income will be;

$\begin{gathered} \frac{\text{ \ 54,000}}{12} \\ =\text{ \ 4,500} \end{gathered}$

Also, it was stated that;

debt payments (other than mortgages) should be less than 8% of a consumer's monthly gross income.

8% of Oliver's monthly income will be;

$\begin{gathered} 8\text{\% of \ 4,500} \\ =\frac{8}{100}\times\text{ \ 4,500} \\ =\text{ \ 360} \end{gathered}$

So, Oliver cannot pay more than $360 of debt per month.

Removing the $100 student-loan payment every month.

We have;

$\begin{gathered} \text{ \ 360 - \ 100} \\ =\text{ \ 260} \end{gathered}$

Therefore, the maximum size of car payment he can afford is;

$\text{ \ 260 per month}$