The account balance on April 1st is $50.51. On April 15th a payment of $15.00 is made. On April 25th a purchase of $19.27 is made. The annual rate is 18%. What is the finance charge using the previous balance method? What is the new balance?
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To calculate the finance charge using the previous balance method, you need to follow these steps:
1. Determine the previous balance: The previous balance is the account balance from the previous billing cycle or statement period. In this case, the previous balance is $50.51.
2. Calculate the average daily balance: To calculate the average daily balance, you need to know the number of days in the billing cycle. Let's assume the billing cycle is 30 days.
a. Calculate the number of days before the payment is made: April 15th - April 1st = 14 days.
b. Calculate the number of days after the payment is made: April 30th - April 15th = 15 days.
c. Add the number of days before and after the payment: 14 days + 15 days = 29 days.
d. Calculate the average daily balance: (Previous Balance x Number of days before payment + Payment Amount x Number of days after payment) / Number of days in the billing cycle.
(50.51 x 14 + 15 x 15) / 30 = 40.16
3. Calculate the finance charge: To calculate the finance charge, you need to multiply the average daily balance by the annual interest rate. In this case, the annual interest rate is 18%.
Finance Charge = Average Daily Balance x (Annual Interest Rate / 365) x Number of days in the billing cycle.
Finance Charge = 40.16 x (0.18 / 365) x 30 = $2.97 (rounded to two decimal places)
So, the finance charge using the previous balance method is $2.97.
To calculate the new balance, you need to add the finance charge, subtract the payment made, and add any additional charges (if applicable).
New Balance = Previous Balance + Finance Charge - Payment Amount + Purchase Amount.
New Balance = 50.51 + 2.97 - 15.00 + 19.27 = $57.75.
Therefore, the new balance is $57.75.