Question

# You had recently received your credit card statement and wish to be sure the finance charge...

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) ____________________

Transaction beginning balance Charge of 150 on day 5 Charge of 300 on day 12 days balance no. od days no. of days ×balance day1 -4 600 4 2400 5 - 11 450 7 3150 12 - 14 150 3 450 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

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