Question

Walter has a credit card that uses the average daily balance method. For the first 15 days of a 31-day billing cycle, his balance was $1440, but then he paid off his entire balance and didn't make any new purchases. If his credit card's APR is 22%, how much was Walter charged in interest for the billing cycle? A.$13.02 B.$13.89 C.$0 D.$26.91

Answer 1

option A is correct, i.e. $13.02

Explanation:

Given the information "For the first 15 days of a 31-day billing cycle, his balance was $1440, but then he paid off his entire balance and didn't make any new purchases."

It means Average Daily Balance = (15 x 1440) / 31 = $696.77

Given his credit card's APR is 22%, Interest rate = r = 22/36500 = 0.00060274

Billing cycle = 31 days.

Interest = Average daily balance x Interest rate x Billing cycle.

Interest = $696.77 x 0.00060274 x 31 = 13.01910564 ≈ $13.02

Hence, option A is correct, i.e. Interest = $13.02