Question

Francis has a credit card that uses the previous balance method. The opening balance of one of his 30-day billing cycles was $0, but this was his balance for only the first 15 days of the billing cycle. He then made a purchase that increased his balance to $3600, and his balance stayed this amount for the remainder of the billing cycle. If his credit card's APR is 21%, how much was Francis charged in interest for the billing cycle?

A. $62.14
B. $0
C. $31.07
D. $75.60

Answer 1

Francis will not be charged any interest for the billing cycle because the interest calculation using the previous balance method is based on the opening balance of $0, and purchases made during the cycle do not affect this calculation.

Step-by-step explanation:

To calculate the interest charged to Francis's account using the previous balance method, we first need to understand how this method works. With the previous balance method, the interest for the billing cycle is based on the opening balance of that cycle, regardless of any charges or payments made during the cycle. Since Francis's opening balance was $0 and remained so for the first half of the billing cycle, and the balance was $3600 for the second half, we do not need to account for the daily balance as he will not be charged any interest on the $0 opening balance.

The formula for calculating credit card interest using the APR is:

Interest = (Average Daily Balance × APR × Days in Billing Cycle) ÷ 365

Since his opening balance was $0 for half the billing cycle, there are no interest charges for that period. His purchase midway through the cycle does not impact the interest calculation for the previous balance method.

Therefore, the correct answer to the amount of interest charged to Francis for the billing cycle is $0 (Option B).