financial literacy homework, help. Please explain

Question

Use the interval 25%-30% to find the monetary range that is recommended for the monthly housing budget in each situation. Round to the nearest dollar.

Mark makes $86,000 per year.

Answer 1

Hello, thank you for taking the time to post your question!

If Mark makes $86,000 per year that means that his monthly income is

$86,000/12 = $7167 per month.

Then if the interval that you’re after is 25%-30% you want to take that monthly value and multiply by 25% and 30% … so the range of values is

25% x $7167 = $1792

30% x $7167 = $2150

Therefore, the recommended monthly housing budget for Mark is between $1,792 and $2,150

I hope that helps get you moving in the right direction! Feel free to reach out if you have any additional questions beyond that :)

Answer 2

Hi Mikey,

 

So the interval 25% - 30% tells us that Mark, who makes $86,000 / year, should feel comfortable spending at least 25% of his salary on housing, and at most 30%. 

 

So, we want to do this calculation on Mark's monthly salary, because the rent (or mortgage) comes due monthly.  Since there are 12 months in the year, then a man who makes 86,000 / year makes 86,000/12 = $7166.66 / month.  By rounding down, I'm underestimating his salary by 8 cents a year, but we wouldn't want to overestimate, so that's a good choice.

 

So what's the lower end of Mark's budget?  25% of $7166.66 = 0.25 * $7166.66 = $1791.665.  Rounding to the nearest dollar, we get $1792.

 

As to the upper end, 30% of $7166.66 = 0.30 * $7166.66 = $2149.998.  Rounding to the nearest dollar, we get $2150.

 

So, the recommended monetary range for Mark's housing budget is $1792 - $2150.

 

Hope that helps.

 

Regards,

Mike N.