Question

On October 1st Joe charged​ $900 to his credit​ card, on October 10th he charged another​ $1,300 to his credit​ card, and on October 15th he charged an additional​ $100. His credit card charges him an Annual Percentage Rate​ (APR) of​ 18% compounded monthly. Using the Average Daily Balance Method calculate​ Joe's finance charge for the month of October.

Answer 1

To calculate Joe's finance charge for October using the Average Daily Balance Method, we need to calculate the daily balances for each day in October, calculate the average daily balance for the billing cycle, and multiply it by the daily interest rate.

Step-by-step explanation:

The Average Daily Balance Method is a method used to calculate the finance charge on a credit card. It involves taking the sum of the daily balances for each day in the billing cycle and dividing it by the number of days in the billing cycle.

1. First, we need to calculate the daily balances for each day in October. Joe charged $900 on October 1st, so the daily balance for that day is $900. He charged another $1,300 on October 10th, so the daily balance for that day is $2,200 ($900 + $1,300). And he charged an additional $100 on October 15th, so the daily balance for that day is $2,300 ($2,200 + $100).
2. Next, we need to calculate the average daily balance for the billing cycle. There are 31 days in October, so we add up the daily balances for each day and divide by 31. In this case, the average daily balance is $2,300.
3. Finally, we calculate the finance charge by multiplying the average daily balance by the Annual Percentage Rate (APR) and dividing by 365 to get the daily interest rate. The APR is 18%, so the daily interest rate is 0.0493% (18% / 365). Multiplying the average daily balance of $2,300 by 0.0493% gives us a finance charge of $1.13 for October.

Therefore, Joe's finance charge for October is $1.13.

Answer 2

$27.25

Step-by-step explanation:

We must first determine the average balance:

(900 x 30 days) / 30 days = $900

($1,300 x 20 days) / 30 days = $866.67

($100 x 15 days) / 30 days = $50

average balance = $900 + $866.67 + $50 = $1,816.67

now we multiply times APR:

daily balance x APR/12 = $1,816.67 x (0.18/12) = $27.25