Question

Calculate the average daily balance, finance charge, and new balance using the average daily balance method. The account balance on June 1st is $104.00. On June 19th a payment of $80.25 is made. The monthly rate is 1.25%

Answer 1

Average daily balance = $71.9

Finance charge = $0.9

New balance: $24.65

Step-by-step explanation:

The average daily balance is calculate by the formula:

+) Average daily balance = Total of daily balance/ Number of days in the cycle.

As given:

+) the daily balance from June 1st to June 18th is $104.00. (18 days)

+) the daily balance on June 19th is:

`Balance - Payment = 104 - 80.25 = $23.75`

=> The daily balance from June 19th to June 30th is: $23.75 (12 days)

=> Total daily balance of June is:
`104 * 18 + 23.75 * 12 = 2,157`

The number of days is 30.

=> Average daily balance = 2,157/ 30 = $71.9

The formula to calculate the finance charge:

+) Finance charge = Monthly rate x Average daily balance =

= 1.25% ×71.9 = $0.9

Using the average daily balance method, the new balance is calculated as following:

+) New balance = Previous balance - Payment + Finance charge + New purchase

= 104 - 80.25 + 0.9 + 0 = 24.65