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Question 1: Calculate the financial charges for the following credit card account daily balances: $900 –...

Question 1: Calculate the financial charges for the following credit card account daily balances:

$900 – during 5 days

$1,200 – during 10 days

$500 – during 7 days

$790 – during 8 days

The financial charges are calculated based on the ADB including new purchases. The credit card APR is 18%. After calculating the financial charges, what would be the annual effective rate if there was a $20 late payment fee added to the same monthly cycle? The intent here is to calculate what is the monthly periodic interest rate and project the annual rate. Assume the month has 30 days and the year has 365 days.

Homework Answers

Answer #1

Financial Charge for Credit card=Average Daily Balance x APR x Days in Billing Cycle / 365

Average Daily Balance = (900*5 +1200*10+500*7+790*8)/30 = $ 877.33

monthly Financial Charges =877.33*18%*30/365 = $ 12.979

Monthly due amount = 900 +1200+500+790 =3390

Month Charges % Monthly charge
1 32.979 0.973%
2 12.979 0.383%
3 12.979 0.383%
4 12.979 0.383%
5 12.979 0.383%
6 12.979 0.383%
7 12.979 0.383%
8 12.979 0.383%
9 12.979 0.383%
10 12.979 0.383%
11 12.979 0.383%
12 12.979 0.383%
HPR (Monthly rate 0.414% GEOMEAN(above rate)
HPR (annual) 4.966% 0.414%*12
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