Calculate the monthly finance charge. (I was able to figure out part A and B but stuck on part C). Please help. Thanks.

Question

3. Calculate the monthly finance charge for the credit card transaction. Assume that it takes 10 days for a payment to be received and recorded, and that the month is 30 days long. (Round your answers to the nearest cent.)
$500 balance, 16%, $50 payment

(a) previous balance method

(b) adjusted balance method


(c) average daily balance method

Answer 1

That doesn't have a lot of information.  It's look like nothing new was put on the credit card and the payment was all that happened.  But it doesn't even give a date for the payment - only says it takes 10 days to get there and get processed.  (Pretty long time. :-) )

 

I will just show an example, using just a payment.

 

If on the billing date you had $300 as a balance, and you had a payment that was applied 22 days later, this means you had a $300 balance for 22 days.  Then the payment lowers that balance, and you would have the new balance for the other 8 days.  Let's say the payment was $100.

 

This is a weighted average.

300 x 22 days = 6600

200 x  8 days =  1600      (300 - 100 payment = new balance of 200)

 

Then we'll add the days and the total dollar values.  (We will not add the 300 and 200.)

This gives us $8200 total, and 30 days total.  So we divide this to get the average per day:

8200/30 = 273.33     (OK, so that came out an icky number. LOL.)

 

So that's your average daily balance - notice it's between the 200 and 300, closer to 300 because that balance was for more days.  And you calculate your finance charge on that amount.