Question

Credit Card Finance Charges. Troy has a credit card that charges 21% on outstanding balances and on cash advances. The closing date on the credit card is the first of each month. Last month Troy left a balance on his credit card of $203. This month Troy took out a cash advance of $165 and made $338 in purchases. Troy made a payment of $216. What will the total of Troy's new balance be on his credit card statement, taking into account finance charges? (Assume the adjusted balance method is used and finance charges on the cash advance are applied for the entire month) The total of Troy's new balance on his next credit card statement, taking finance charges into account, is $ (Round to the nearest cent.)

Answer 1

Troy's new balance on his credit card, taking into account purchases, cash advances, payment, and a 21% annual interest rate applied as a monthly finance charge, will be approximately $498.58.

Step-by-step explanation:

Calculating Troy's New Credit Card Balance:

To calculate Troy's new balance on his credit card statement, including finance charges, we need to first calculate the adjusted balance by subtracting the payment made from the initial balance and then adding purchases and cash advances. We then apply the monthly finance charges to this adjusted balance.

The initial balance was $203, and Troy made a payment of $216. Since the payment exceeds the initial balance, we can assume the remaining $13 reduces the cash advance, so the remaining cash advance is $165 - $13 = $152. After adding $338 in purchases, the adjusted balance before finance charges is $152 + $338 = $490. The finance charge is calculated using the 21% annual interest rate on the adjusted balance. However, daily interest is often calculated by lenders; for simplicity, we will calculate monthly interest as (21%/12) * $490 = $8.575. So, the finance charge for the month is approximately $8.58.the new balance, including finance charges, will be the adjusted balance plus the finance charge: $490 + $8.58 = $498.58. Therefore, the total Troy's new balance on his next credit card statement, taking the finance charges into account, will be $498.58 (rounded to the nearest cent).