Question

Andrew is on a 30-day billing cycle. His credit card has an APR of 16. 60% and computes finance charges using the previous balance method. The table below shows transactions that Andrew made in March. Based on the information in the table, what will Andrew’s March finance charge be? Date Amount ($) Transaction 3/1 1,794. 30 Beginning balance 3/6 440. 15 Purchase 3/9 35. 65 Purchase 3/22 250. 00 Payment 3/25 51. 71 Purchase a. $46. 07 b. $28. 66 c. $21. 36 d. $24. 82.

Answer 1

1. Andrew's March finance charge will be $46.07.

Step-by-step explanation:

To calculate the finance charge, we use the previous balance method, which means interest is charged on the average daily balance during the billing cycle. Andrew's transactions include a beginning balance of $1,794.30, purchases, and a payment during the 30-day cycle. The average daily balance is calculated by considering the daily balances and dividing by the number of days in the billing cycle.

The formula for calculating the finance charge using the previous balance method is:

`\[ \text{Finance Charge} = \left(\frac{\text{Average Daily Balance} * \text{APR} * \text{Number of Days in Billing Cycle}}{\text{Number of Days in a Year}}\right) \]`

After calculating the average daily balance, we can substitute the values into the formula to find the finance charge. In this case, the correct result is $46.07, which is the finance charge for Andrew's credit card in March.

In conclusion, the finance charge is determined by the previous balance method, taking into account the daily balances and the number of days in the billing cycle. The accurate calculation yields a finance charge of $46.07 for Andrew's credit card in March.