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.)

$300 balance, 18% rate, $250 payment, previous balance method

To calculate the monthly finance charge using the previous balance method, you would need to follow these steps:

1. Determine the average daily balance:

The average daily balance is calculated by adding up the daily balances for the entire billing cycle and dividing it by the number of days in the billing cycle. Given that the month is assumed to be 30 days long, the average daily balance can be calculated as follows:

Average Daily Balance = (Previous Balance x Number of Days) + (Purchase Amount x Number of Days) - (Payment Amount x Number of Days)
= ($300 x 10) + ($0 x 20) - ($250 x 30)
= $3,000 + $0 - $7,500
= -$4,500

Since the average daily balance is negative, it means that the cardholder has overpaid, resulting in a credit.

2. Determine the daily periodic interest rate:

The daily periodic interest rate is calculated by dividing the annual interest rate by the number of days in a year (365). Given that the annual interest rate is 18%, the daily periodic interest rate can be calculated as follows:

Daily Periodic Interest Rate = (Annual Interest Rate / Number of Days in a Year)
= (18% / 365)
= 0.0493%

3. Calculate the monthly finance charge:

The monthly finance charge is calculated by multiplying the average daily balance by the daily periodic interest rate and then multiplying it by the number of days in the billing cycle. Given that the billing cycle is 30 days, the monthly finance charge can be calculated as follows:

Monthly Finance Charge = (Average Daily Balance x Daily Periodic Interest Rate) x Number of Days
= (-$4,500 x 0.0493%) x 30 days
= (-$4,500 x 0.000493) x 30
≈ -$6.71

Rounding the answer to the nearest cent, the monthly finance charge in this case would be approximately -$6.71.