Accounting Fundamentals Certification (AFC) Practice Test

To calculate the debt-to-income (DTI) ratio, you need to know both the total monthly debt payments and the monthly gross income. The DTI ratio is calculated by dividing total monthly debt payments by monthly gross income and then multiplying by 100 to get a percentage.

In this case, the annual gross income of $48,000 converts to a monthly gross income of $4,000 ($48,000 divided by 12 months). The DTI ratio indicates how much of the client’s monthly income is going toward their debt obligations.

If the client's total monthly debt payments were $1,740, for example, you would calculate the DTI like this:

DTI = (Total Monthly Debt Payments / Monthly Gross Income) x 100

DTI = ($1,740 / $4,000) x 100

DTI = 0.435 x 100

DTI = 43.5%

This means that 43.5% of the client’s gross monthly income is used to pay their debts, which is the point of interest in this scenario. This percentage can then be compared against typical DTI thresholds used in lending to evaluate financial health and eligibility for credit. The 43.5% figure demonstrates