Question

The balance on a credit card, that charges a 12%

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?
finance charge = $ [?]
Round to the nearest hundredth.
Enter

Answer 1

The finance charge for the average daily balance on the credit card over a one-month period with a 12% APR is $1.45.

Step-by-step explanation:

To calculate the finance charge on the average daily balance for the credit card over a one-month period with a 12% APR interest rate, we follow these steps:

1. Calculate the average daily balance for the period.
2. Divide the annual interest rate by 12 to find the monthly interest rate.
3. Multiply the average daily balance by the monthly interest rate to find the finance charge.

Here's how we do it step by step:

1. Average Daily Balance:

• Days 1-3: $150 balance for 3 days
• Days 4-20: $200 balance for 17 days
• Days 21-30: $50 balance for 10 days

Total balance over the 30 days = (150 * 3) + (200 * 17) + (50 * 10) = 450 + 3400 + 500 = 4350

Average daily balance = Total balance / 30 days = 4350 / 30 = $145

2. Monthly Interest Rate = 12% APR / 12 months = 1% per month

3. Finance Charge = Average daily balance * Monthly Interest Rate

= $145 * 1%

= $1.45