Final answer:
To find the finance charge on varying credit card balances over a month, calculate the average daily balance multiplied by the daily interest rate (annual rate divided by 365) and the number of days. For the example provided, the correct finance charge is not among the options, indicating an error in the question or options.
Step-by-step explanation:
To calculate the finance charge on a credit card balance with different amounts over different days, we must find the average daily balance and then apply the annual interest rate. The formula for the finance charge is:
Finance Charge = Average Daily Balance × (Annual Interest Rate / 365) × Number of Days in Billing Cycle
Here are the computations for each balance:
- $400 for 5 days contributes $400 × 5 = $2,000 to the total balance-days.
- $650 for 9 days contributes $650 × 9 = $5,850 to the total balance-days.
- $800 for 4 days contributes $800 × 4 = $3,200 to the total balance-days.
- $725 for 12 days contributes $725 × 12 = $8,700 to the total balance-days.
Total balance-days over the billing cycle is $2,000 + $5,850 + $3,200 + $8,700 = $19,750.
The billing cycle is 5 + 9 + 4 + 12 = 30 days long.
So, the Average Daily Balance is $19,750 / 30 = $658.33.
Now we can calculate the finance charge with an annual interest rate of 21%:
Finance Charge = $658.33 × (0.21 / 365) × 30 $≈ $10.72
The correct finance charge is not listed among the options provided, indicating there might be an error in the question or the options presented.