Calculate the monthly finance charge for the following 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 answer to the nearest cent.)
$3,000 balance, 21% rate, $150 payment, average daily balance method
To calculate the monthly finance charge for this credit card transaction using the average daily balance method, you will need to follow these steps:
Step 1: Determine the average daily balance.
- Calculate the number of days in the billing cycle by subtracting the payment posting period from the number of days in the month: 30 - 10 = 20 days.
- Multiply the balance by the number of days in the billing cycle: $3,000 * 20 = $60,000.
Step 2: Calculate the daily periodic rate.
- Divide the annual interest rate by 365: 21% / 365 = 0.0005753 (rounded).
Step 3: Compute the monthly interest charge.
- Multiply the average daily balance by the daily periodic rate: $60,000 * 0.0005753 = $34.52 (rounded).
So, the monthly finance charge for this credit card transaction would be approximately $34.52.