Final answer:
The finance charge on a home equity loan with an average daily balance of $97,552 during a 30-day billing period and an interest rate of 5.75% would be $461.45 when calculated using the daily periodic rate method.
Step-by-step explanation:
To calculate the finance charge on a home equity loan using an average daily balance method with a daily periodic rate, you must first establish the daily interest rate by dividing the annual interest rate by the number of days in a year. For an annual interest rate of 5.75% and a 365-day year, the daily periodic rate would be 0.01575342% (or 0.0001575342 when expressed as a decimal, rounded to 8 decimal places).
Next, you multiply the average daily balance by the daily interest rate and then by the number of days in the billing period. In this case, the finance charge for 30 days with an average daily balance of $97,552 would be calculated as follows:
- Average daily balance: $97,552
- Daily interest rate: 0.0001575342
- Number of days in billing period: 30
Finance Charge = Average Daily Balance × Daily Interest Rate × Number of Days in Billing Period
Finance Charge = $97,552 × 0.0001575342 × 30
Finance Charge = $461.45 when rounded to the nearest cent.