Using the 28/36 ratio, determine the maximum allowable recurring debt for someone with an annual income of $86,250.
a.
$575.00
b.
$2,012.50
c.
$2,415.00
d.
$2,587.50

Option A.

Step-by-step explanation:

Annual income = $86,250

Monthly income =

According to the 28/36 rule:

1. A household should spend no more than 28% of its gross monthly income on total housing expenses.

2. No more than 36% on all debt, including housing-related expenses and other recurring debt service.

36% - 28% = 8%

It means maximum allowable recurring debt is 8% of monthly income.

Maximum allowable recurring debt =

                                                           = $575

Therefore, the correct option is A.

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