A Good Rule of Thumb Is to Limit Installment Payments

question 23

Multiple Choice

A good rule of thumb is to limit installment payments to ____________ of your net (after-tax) income.

• A) 20%
• B) 30%
• C) 40%
• D) 50%
• E) 60%

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Definitions:

Capital Stock

The original amount the owners paid into the company plus any additional paid-in capital to purchase stock in the company.

Long-Term Debt

An obligation for debt that is due to be repaid in more than 12 months.

5-Year Bank Loan

A financial agreement where a bank lends money to a borrower, to be repaid with interest over a five-year period.

Intangible Assets

Non-physical assets that have value, such as trademarks, patents, copyrights, and goodwill.