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.) $200 balance, 14%, $50 payment (a) previous balance method $ Incorrect: Your answer is incorrect. (b) adjusted balance method $ Incorrect: Your answer is incorrect. (c) average daily balance method $
To calculate the monthly finance charge using the average daily balance method, you need to follow these steps:
Step 1: Calculate the average daily balance
Multiply the number of days the balance was held in each cycle by the corresponding balance, and then sum these values for the entire billing cycle.
Here's the calculation for your example:
(10 days x $200) + (20 days x $0) = $2,000.
Step 2: Divide the average daily balance by the number of days in the billing cycle
$2,000 / 30 days = $66.67
Step 3: Calculate the monthly interest rate
Divide the annual interest rate by 12 to get the monthly interest rate.
14% / 12 = 0.01167
Step 4: Calculate the monthly finance charge
Multiply the average daily balance by the monthly interest rate.
$66.67 x 0.01167 = $0.78
Therefore, the monthly finance charge using the average daily balance method is $0.78.