Question

Frank Hawkins had the following information about his charge activites on his credit card in June:

Beginning Balance : $300

June 05: Purchased Textbook $500

June 11: Monthly payment $120

Ending balance before adding interest: $680

APR shown on the statement for June: 15%

What will be Frank's interest for June under previous balance method, adjusted balance method, average daily balance method?

Answer 1

Periodic Rate = APR/12Months = 15/12 Months = 1.25% or 0.0125

Interest for June under previous balance method = Previous balance * Periodic rate

= $300 * 0.0125

= $3.75

Interest for June under adjusted balance method = Adjusted Balance * Periodic rate

= ($300 + $500 - $120) *0.0125

= $680 * 0.0125

= $8.5

Interest for June under average daily balance method -

Balance from 1st June to 4th June = $300 *4 = $1200

Balance from 5th June to 10th June = $800 * 6 = $4,800

Balance from 11th June to 30th June = $680 * 20 = $13,600

Average daily balance = ($1,200 + $4,800 + $13,600)/30 days

=$19,600/30

=$653.33

Interest under average daily balance method = Average daily balance * periodic rate

=$653.33 * 0.0125

=$8.17