Nancy Tai has recently opened a revolving charge account with MasterCard. Her credit limit is $1,000, but she has not charged that much since opening the account. Nancy hasn’t had the time to review her monthly statements promptly as she should, but over the upcoming weekend she plans to catch up on her work. She has been putting it off because she can’t tell how much interest she paid or the unpaid balance in November. She spilled watercolor paint on that portion of the statement.
In reviewing November’s statement she notices that her beginning balance was $600 and that she made a $200 payment on November 10. She also charged purchases of $80 on November 5, $100 on November 15, and $50 on November 30. She paid $5.27 in interest the month before. She does remember, though, seeing the letters APR and the number 16%. Also, the back of her statement indicates that interest was charged using the average daily balance method, including current purchases, which considers the day of a charge or credit.
To determine the interest paid and the unpaid balance in November, we need to calculate the average daily balance for the month and then use it to calculate the interest charged.
Step 1: Calculate the Average Daily Balance
To calculate the average daily balance, we need to add up the balances for each day in November and divide it by the number of days in the month.
Beginning balance: $600
November 5: Charged $80
November 10: Made a $200 payment
November 15: Charged $100
November 30: Charged $50
To calculate the average daily balance, we need to consider these transactions and their respective dates:
November 5:
Balance: $600 + $80 = $680
November 10:
Balance: $680 - $200 = $480
November 15:
Balance: $480 + $100 = $580
November 30:
Balance: $580 + $50 = $630
Now, we calculate the average daily balance by summing up the balances for each day and dividing it by the total number of days in November (30):
Average Daily Balance = (30 * $630) / 30 = $630
Step 2: Calculate the Monthly Interest Charged
To calculate the interest charged, we need to use the average daily balance and the APR provided (16%).
We'll use the simple interest formula: Interest = Average Daily Balance * Daily Interest Rate * Number of Days.
Daily Interest Rate = (APR / 365)
Number of Days in November = 30
Therefore, the monthly interest charged is:
Interest = $630 * (16% / 365) * 30 = $8.66 (approx.)
So, Nancy paid approximately $8.66 in interest for the month of November.
Step 3: Calculate the Unpaid Balance
To calculate the unpaid balance, we need to subtract the payment made on November 10 from the average daily balance.
Unpaid Balance = Average Daily Balance - Payment Made
Unpaid Balance = $630 - $200 = $430
Therefore, the unpaid balance in November is $430.
In conclusion, Nancy Tai paid approximately $8.66 in interest and had an unpaid balance of $430 in November.