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Mike and Jane Anderson earn a combined $7,500 in gross monthly income. Their monthly debt obligations include a mortgage payment of $1,350, student debt of $350, and a car payment of $250. In addition, they have a rainy day savings account balance of $10,000 and other savings of $15,000 they call Savings II. Savings II is money set aside for future improvements to their house and/or special major purchase needs. The current interest rate being paid on Savings II is 3% The Andersons are in need of a new car and have identified a used Subaru Forrester in good condition for $20,000. The car currently is 5 years old and has 65,000 miles. The Smiths project will put at least 20,000 miles per year on the car. The Andersons need to finance this purchase and the best rates they have found is 5.5% for 4 years; 6% for 5 years and 7% for 7 years. The Andersons really want this car as they have been looking for a Forrester for some time. However, they dont want their DTI (debt to income) to exceed 30% after this purchase.

A) What is the Andersons' current DTI (Debt to income = debt/income)

B) Calculate the monthly payments for a 4, 5, and 7-year loan based on the rates stated above and assuming the Andersons borrow 100% of the purchase price.

C) How much can the Andersons borrow to make sure their DTI does not exceed 30% assuming a 4-year loan at 5.5%

D) Given the age and expected use of this vehicle, what loan term would you recommend for the Andersons

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