Question

The balance on a credit card, that charges a 15.5%

APR interest rate, over a 1 month period is given in
the following table:
Days 1-3: $150 (initial balance)
Days 4-20: $200 ($50 purchase)
Days 21-30: $50 ($150 payment)
What is the finance charge, on the average daily
balance, for this card over this 1 month period?

Answer 1

The finance charge on the average daily balance for this card over the 1 month period is $2.53.

Explanation:

To calculate the finance charge, we need to find the average daily balance first. We can do this by adding up the balances for each day and dividing by the number of days in the billing period:

((3 x 150) + (17 x 200) + (10 x 50)) / 30 = 156.67

So the average daily balance is $156.67.

To calculate the finance charge, we can use the following formula:

finance charge = average daily balance x daily periodic rate x number of days

The daily periodic rate is calculated by dividing the APR by 365 days:

daily periodic rate = 0.155 / 365 = 0.00042466

Plugging in the numbers, we get:

finance charge = 156.67 x 0.00042466 x 30 = $2.53

So the finance charge on the average daily balance for this card over the 1 month period is $2.53.