Question

You have been pricing an MP3 player in several stores. Three stores have the identical price of $700. Each store charges 12 percent APR, has a 30-day grace period, and sends out bills on the first of the month. On further investigation, you find that store A calculates the finance charge by using the average daily balance method, store B uses the adjusted balance method, and store C uses the previous balance method. Assume you purchased the MP3 player on May 5 and made a $100 payment on June 15. What will the finance charge for June be if you made your purchase from store A?

Answer 1

The answer is: $6.50

Step-by-step explanation:

Assuming you bought the MP3 player in store A, to calculate the finance charge for June we can use the following formula (applicable to daily balance method):

• [(beginning balance + ending balance) / 2] x (annual interest rate / 12)

= [($700 + $600) / 2] x (12% / 12) = ($1300 / 2) x 0.01 = $650 x 0.01

= $6.50