Question

The balance on a credit card, that charges a 10.5%APR interest rate, over a 1 month period is given inthe following table:Days 1-5: $200 (initial balance)Days 6-20: $350 ($150 purchase)Days 21-30: $150 ($200 payment)What is the finance charge, on the average dailybalance, for this card over this 1 month period?finance charge = $ [?]Round to the nearest hundredth.Enter

Answer 1

First, let's calculate the average daily balance for the cycle. We do so by adding up each day's balance for the billing cycle and dividing by the total number of days in the billing cycle.

By doing so, we'll have the following:

• Days 1,2,3,4 and 5: ,$200

,

• Days 6,7,8,9,10,11,12,13,14,15,16,17,18,19 and 20: ,$350

,

• Days 21,22,23,24,25,26,27,28,29,30: ,$150

`((200\cdot5)+(350\cdot15)+(150\cdot10))/(30)\rightarrow258.33`

Thereby, the average daily balance is $258.33

To get the finance charge, we then multiply this average daily balance by the monthly interest rate.

To get the monthly interest rate, we take the APR and divide it by 12:

`(10.5)/(12)\rightarrow0.875`

We get that the monthly interest rate is 0.875%

Multiplying by the average daily balance,

`258.33\cdot(0.875)/(100)\rightarrow2.26`

We can conclude that the finance charge is $2.26