Question

Round to the nearest cent. The unpaid balance in an account on December 1 was $103. A payment of $55 was made on December 16. The interest rate per month was 1.75% per month of the average daily balance. Find the finance charge for the month of December.

Select one:

a. $2.64

b. $1.21

c. $1.31

d. $0.84

Answer 1

Given,

Unpaid balance on December 1 = $103

Payment made on December 16 = $55

Interest rate per month = 1.75%

Solution :-

Unpaid balance on December 16 = Unpaid balance on December 1 - Payment made on December 16

= $103 - $55 = $48

Average daily balance

= [(Unpaid balance on December 1 x 15 days) + (Payment made on December 16 x 16 days)] 31 days

= [($103 x 15 days) + ($48 x 16 days)] 31 days

= [$1545 + $768] 31 days

= $2313 31 days = $74.6129

Now,

Finance charge = Average daily balance x interest rate per month

= $74.6129 x 1.75% = $1.31

So, the finance charge for the month of December is $1.31