Question

1. You had recently received your credit card statement and wish to be sure the finance charge for the billing cycle is correct. The statement indicated a beginning balance of $600. On day 5 a charge of $150 had posted to the account, on day 12 a charge of $300 posted to the account. On day 15 you had made a payment of $200. Use the below table to calculate the average daily balance and the finance charge, assuming the interest rate is 19.2%.

Transaction	Days (ex. 1-6)	Balance	# of days	Balance X # of Days
$600 Beg. Balance		600
$150 charge
$300 charge
$200 payment
		-------	30	$

Average Daily Balance ____________________

Total Finance Charge (show calculation) ____________________

Answer 1

Transaction	days	balance	no. od days	no. of days ×balance
beginning balance	day1 -4	600	4	2400
Charge of 150 on day 5	5 - 11	450	7	3150
Charge of 300 on day 12	12 - 14	150	3	450
Payment of 200 on day 15	15 -30	350	16	5600
			30	11600

Average daily balance =11600/30=386.66

Calculation of interest

Interest for a period= balance × outstanding period of balance/30 × periodic interest rate

Our annual interest rate is 19.2% assuming 360 working days in a year our periodic i.e. daily interest rate is .192/360

Interest :

For First 4 days = 600×4×.192/360=1.28

For next 7 days=450×7×.192/360=1.68

For next 3 days= 150 × 3 ×.192/360=.24

For last 16 days= 350×16×.192/360=2.99

Total=1.28+1.68+.24+2.99=6.19

Another way to calculate interest is

Total interest = average daily balance × monthly interest rate

=386.66×.192/12=6.19