Question

The opening balance of one of the 31-day billing cycles for Lorenzo's credit card was $4100, but after 15 days Lorenzo made a payment of $2300 to decrease his balance, and it stayed the same for the remainder of the billing cycle. If his credit card's APR is 24%, how much more in interest would he pay for the billing cycle with the previous balance method than with the adjusted balance method?

A.$120.26
B.$83.57
C.$36.69
D.$46.88

Answer 1

Method 1
7,400×0.22×(31÷365)=138.27

Method 2
7,500×0.22×(15÷365)+2,500
×0.22×(16÷365)=91.91

How much more
138.27−91.92=46.35
The answer is D
46.35 because I rounded the answer in the method 1

Answer 2

D.$46.88

Explanation:

adjusted balance method

The interest under the adjusted balnace method are calcualte aftert all the transactions for the month are posted.

beginning balance less payment equal ending balance

4,100 - 2,300 = 1,800

now we use that value to calcualte the interest:

principal x rate x time = interest

1,800 x 0.24 x 31/365 = 36.69

interest with 31-days billing cycle: we do not consider the payment until the next billying cycle

4,100 x 0.24 x 31/365 = 83.57

difference: 83.57 - 36.69 = 46.88

As calculated it would pay $46.88 more with this method.