Question

# Calculate the monthly finance charge for the credit card transaction. Assume that it takes 10 days...

Calculate the monthly finance charge for the credit card transaction. Assume that it takes 10 days for a payment to be received and recorded, and that the month is 30 days long. (Round your answers to the nearest cent.) \$400 balance, 14%, \$50 payment

(a) previous balance method

(c) average daily balance method

(a) Previous balance method:

Finance charge = Beginning balance x Annual rate x (Billing period / Total number of days)

= \$400 x 14% x (30/365)

= \$4.60

Finance charge = (Beginning balance - Payment) x Annual rate x (Billing period / Total number of days)

= (\$400 - \$50) x 14% x (30/365)

= \$4.03

(c) Average daily balance method:

Finance charge = Average daily balance x Annual rate x (Billing period / Total number of days)

= \$166.67 x 14% x (30/365)

= \$1.92

Average daily balance = [(Beginning balance x 10) + (payment x 20)] / Billing period

= [(\$400 x 10) + (\$50 x 20)] / 30

= (\$4,000 + \$1,000) / 30

= \$5,000 / 30

= \$166.67

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