The increase in this month's finance charge due to the higher APR is $16.24, and the rise in interest rate cost for a typical year is approximately $194.88.
To find the increase in this month's finance charge due to the higher APR, we can use the following steps:
a. First, we calculate the increase in the monthly finance charge:
We find the difference in the finance charges at the two APRs.
The finance charge is calculated as the average daily balance multiplied by the APR divided by 365 (the number of days in a year).
Using the given average daily balance of $8,237, we can calculate the increase in the monthly finance charge as follows:
At 18% APR: (8,237 * 0.18) / 365 = $40.54
At 25.2% APR: (8,237 * 0.252) / 365 = $56.78
The increase in the monthly finance charge is: $56.78 - $40.54 = $16.24
b. To find the rise in interest rate cost for a typical year, we can multiply the increase in the monthly finance charge by 12 (the number of months in a year):
$16.24 * 12 = $194.88
Therefore, the increase in this month's finance charge due to the higher APR is $16.24, and the rise in interest rate cost for a typical year is approximately $194.88.
Complete question:
Tomika’s credit rating was lowered, and the credit card company raised her APR from 18% to 25.2%.
a. If her average daily balance this month is $8,237, what is the increase in this month’s finance charge due to the higher APR?
b. If this amount is typical of Tomika’s average daily balance all year, how much would the rise in interest rate cost her in a typical year? Round to the nearest ten dollars.