Question

The activity on Marny Zell's MasterCard account for one billing period is shown below. Find the average daily balance and the finance charge if the billing period is June 26 through July 25, the previous balance was $392.17, and the annual interest rate is 19.5%. June 30 payment $200.00 July 2 gasoline $39.97 July 10 restaurant $53.00 average daily balance $ finance charge $

Answer 1

Step 1:

Time Interval	Days	Daily Balance
June 26 - 29	4	$396.68
June 30 - July 1	2	$396.68 - 100 = $296.68
July 2 - 9	8	$296.68 + 36.69 = $332.87
July 10 - 25	16	$332.87 + 53 = $385.87

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Step 2:

Average Daily Balance:

= (4 x 396.68 + 2 x 296.68 + 8 x 332.87 + 16 x 385.87) / 4 + 2 + 8 + 16

= $367.232

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Now the Finance charge is simply the interest amount on the average daily balance.

Here, P = $367.232 r = 0.195 t = 30 / 365 days

Simple Interest (I)

= P x r x t

= 367.232 x 0.195 x (30 / 365)

= $5.89

Hence, the finance charges are $5.89.

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Feel free to ask any doubt.