Question

Your credit card charges 21% interest, compounded monthly. Here is your activity for October, 2018. (It was not a leap year)

1. What is the service charge if your credit card uses ending balance method?

	Date	Amount	Balance	Days
Start of October			300
Charge	10/4	80
Payment	10/7	300
Charge	10/20	20
Charge	10/31	10

Answer 1

Interest Rate 21%, Compounded monthly

Peridic Rate of 1month = 21/12 =1.75%

APR = (1+Periodic Rate) ^ n - 1

= (1+0.0175)^12- 1 = 23.14%

The ending balance method of calculating the service charges uses the balance at the beginning of the billing cycle to calculate the service charges for that month. This means none of the activity that takes place with your account during that particular monthly billing cycle will affect your finance charge costs.

APR (Annual Percentage Rate) = 23.14

Periodic rate = 1.929 percent (APR / 12 months)

Days in billing cycle = 31

Beginning balance = $300

Payment made on 10h day = $300



Service charge = Previous balance * periodic rate

= $300 * .01929

= $5.787 Service charge

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