7) Calculate next month’s finance charge 2 different ways for an individual that

Question

7) Calculate next month’s finance charge 2 different ways for an individual that had $255 outstanding balance on a credit card at the beginning of April that has 30 days. On April 6th the individual made a payment of $200 and then on the 21st made a charge of $75 for concert tickets. The annual interest rate on the credit card is 15%. (10 points each) a. Find the finance charge for the next month using the unpaid balance method. b. Find the finance charge for the next month using the average daily balance method

7) Calculate next month’s finance charge 2 different ways for an individual that had $255 outstanding balance on a credit card at the beginning of April that has 30 days. On April 6th the individual made a payment of $200 and then on the 21st made a charge of $75 for concert tickets. The annual interest rate on the credit card is 15%. (10 points each) a. Find the finance charge for the next month using the unpaid balance method. b. Find the finance charge for the next month using the average daily balance method

7) Calculate next month’s finance charge 2 different ways for an individual that had $255 outstanding balance on a credit card at the beginning of April that has 30 days. On April 6th the individual made a payment of $200 and then on the 21st made a charge of $75 for concert tickets. The annual interest rate on the credit card is 15%. (10 points each) a. Find the finance charge for the next month using the unpaid balance method. b. Find the finance charge for the next month using the average daily balance method

Explanation / Answer

a. In the unpaid balance method, we apply the annual rate to the outstanding balance at the beginning of April

Monthly interest rate = 0.15 / 12 = 0.0125

Finance charge =  $255 * 0.0125 = $3.19

b. In the average daily balance method, we first calculate the average balance as follows

Average daily balance = $3,400 / 30 = $113.33

Finance Charge = Average Daily Balance * Interest Rate

= $113.33 * 0.0125 = $1.42

Dates No of Days Balance Partial Sum Apr 1-5 5 $255 $1,275 Apr 6-20 15 $55 $825 Apr 21-30 10 $130 $1,300 Sum = $3,400

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