Multiple Choice
If a company has 700,000 pennies, how much is this amount in dollars?
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1. Introduction to Accounting
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According to the Consumer Financial Protection Bureau (CFPB), what percentage of your gross monthly income should ideally be allocated to debt payments (including mortgage, car loans, and credit cards) to maintain healthy financial habits?
A
At least 50%
B
Up to 45%
C
No more than 36%
D
Exactly 25%
Verified step by step guidance1
Understand the concept of the debt-to-income (DTI) ratio, which measures the percentage of your gross monthly income allocated to debt payments. This is a key metric used by financial institutions to assess financial health.
Recognize that the Consumer Financial Protection Bureau (CFPB) recommends maintaining a DTI ratio of no more than 36% to ensure healthy financial habits. This includes all debt payments such as mortgage, car loans, and credit cards.
Evaluate the options provided in the problem: 'At least 50%', 'Up to 45%', 'No more than 36%', and 'Exactly 25%'. Compare these percentages to the CFPB's recommendation.
Identify that the correct answer aligns with the CFPB's guideline of 'No more than 36%' for debt payments as a percentage of gross monthly income.
Conclude that maintaining a DTI ratio of no more than 36% helps ensure financial stability and reduces the risk of over-indebtedness.
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