Question

A credit card company uses your average daily balance to compute your finance charge. You charge $100 on May 2 and $200 on May 20. What is your average daily balance? If the APR on this credit card is 18%, what would the finance charge be for May?

Answer 1

The average daily balance is $23.33 and the finance charge for May is approximately $0.115.

Step-by-step explanation:

To find the average daily balance, we need to calculate the sum of the balances for each day and divide it by the number of days in the billing cycle. Assuming a 30-day billing cycle:

1. From May 2 to May 19 (18 days), the balance is $100.
2. On May 20, the balance increases to $300.
3. From May 21 to May 31 (11 days), the balance is $300.

The sum of the balances is $100 + $300 + $300 = $700. The average daily balance is $700 / 30 = $23.33 (approx.).

To calculate the finance charge, we multiply the average daily balance by the annual percentage rate (APR) and divide it by the number of days in a year.

Finance charge = ($23.33 * 0.18) / 365 = $0.115 (approx.).