Final answer:
To calculate a new balance on a revolving credit account with a 15% annual percentage rate, one must calculate the average daily balance, apply the annual percentage rate to find the interest, and add this to the previous balance. Understanding this method is crucial as credit card borrowing at an average rate of 15% per year can add up to significant amounts over time.
Step-by-step explanation:
The question pertains to the process of calculating interest on a revolving credit account using the average daily balance method. Given the information provided, let's detail the steps required to find the new balance on an account with a 15% annual percentage rate (APR):
- Calculate the average daily balance: This requires summing the daily balances over the statement period and dividing by the number of days in the period.
- Apply the annual percentage rate: Convert the APR to a daily rate (divide the APR by the number of days in a year) and multiply this rate by the average daily balance to determine the interest for the period.
- Add the interest to the previous balance: To find the new balance, take the previous balance and add the interest that has accrued over the statement period.
To comprehend the broader context, consider that credit cards are a form of revolving credit that accrues interest based on the remaining balance. Typically, credit card interest rates range from 12% to 18% per year, and using them unwisely can result in significant debt over time. With 15% being the quoted average annual interest rate for credit card borrowing, it's critical for users to understand how interest is calculated and applied to their accounts.