Question

The Jewelry Exchange has a $20,000 line of credit with Nations Bank. The annual percentage rate is the current prime rate plus 4.3%. The balance on March 1 was $8,600. On March 6, the company borrowed $6,900 to pay for a shipment of supplies, and on March 17, it borrowed another $4,000 for equipment repairs. On March 24, a $9,500 payment was made on the account. The billing cycle for March has 31 days. The current prime rate is 8%.

Note: Round the periodic rate to the nearest hundredth percent. Round your answers to the nearest cent. Do not round any other intermediate calculations.

a. What is the finance charge on the account?

$

b. What is the company's new balance?

$

c. On April 1, how much credit does the Jewelry Exchange have left on the account?

$

Answer 1

Current prime rate = 8%

The annual percentage rate is the current prime rate plus 4.3% = 8% +4.3% =12.3%

Monthly rate of interest = 12.3%/12 =1.025%

Balance from March 1 to March 5 (5 days) balance = $8,600

Add, on March 6, the company borrowed $6,900

Balance from March 6 to March 16 (11 days) = $15,500

Add, On March 17, it borrowed another $4,000

Balance from March 17 to March 23 (7 days) = $19,500

Less, On March 24, a $9,500 payment was made

Balance from March 24 to March 31 (8 days) = $10,000

Answer a:

Finance charge = ($8,600 *5/31 + $15,500 *11/31 + $19,500 * 7/31 + $10,000 * 8/31) * 1.025%

= $142.18

Answer b:

Company's new balance = Balance as March 31 as calculated above + Finance charge for the month = $10,000 + $142.18

= $10,142.18

Answer c:

Credit facility left on the account = Line of credit limit - Existing balance = $20,000 - $10,142.18 = $9,857.82