Question

A charge account had a balance of $985 on May 5. A purchase of $252 was made on May 17, and a payment of $150 was made on May 20. The interest on the average daily balance is 1.5% per month. Find the finance charge on the June 5 bill. (Round your answer to the nearest cent.)

Answer 1

1) COMPUTATION OF AVERAGE DAILY BALANCE

Average daily balance = Sum of the total amounts owed each day of the month / Number of days in the billing period

Date	Payments or Purchases	Balance each day	Number of days until balance changes	Unpaid balance times number of days
May 5 - May 16		$985	12	$11,820
May 17 - May 19	$252	$1,237	3	$3,711
May 20 - June 4	($150)	$1,087	16	$17,392
TOTAL			31	$32,923

Average daily balance = $32,923 / 31

= $1,062

2) COMPUTATION OF FINANCE CHARGE

I = Prt

I = Evaluating Finance Charge

I = 1,062 X 1.5  / 100 X 1

= $15.93 ie. $16

Finance Charge on Credit card is $16