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.$83.57

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

Answer 1

Given:
31 days = 7,400
15 days = payment of 4,900
16 days = 7,400 - 4,900 = 2,500

Method 1:
7,400 * 22% * 31/365 = 138.27

Method 2: adjusted balance
7,400 * 22% * 15/365 = 66.90
2,500 * 22% * 16/365 = 24.11
66.90 + 24.11 = 90.21

138.27 - 90.21 = 48.06

She would pay 48.06 more with the previous balance method than with the adjusted balance method.

Answer 2

Adjusted Balance method

Amount in Lorenzo credit card in the beginning of month= $ 4100

Payment made = $ 2300

Amount in Lorenzo credit card after 15 days = $ 4100 -$ 2300= $ 1800

APR= 24 %

Monthly APR =
`(24* 31)/(365)=2.038`%

2.03% of 1800=$ 36.54

Previous Balance method:

Amount possessed at the beginning of the month= $ 4100

APR= 24 %

Monthly APR =
`(24* 31)/(365)=2.038`%

2.038% of 4100=$ 83.23

The interest that Lorenzo would pay for the billing cycle with the previous balance method than with the adjusted balance method

= $ 83.23 - $ 36.54

= $ 46.69→→ option (B)