Using the average daily balance method and the information given, find the credit card finance charge for the month of August (31 days). The annual interest rate is 18%.
July 31st (Balance) $590
August 5 (Charge) $90
August 9 (Payment)$560
August 14 (Charge)$193
August 24 (Charge)$41
I do not know how to do this. I know I am using I=PRT. However, I am getting my answers wrong.
Aug.5-8 (590+90=680)3*680=2040
Aug.9-13 (680-560=$120)4*120=480
Aug.14-23 (120+193-$313)9*313=2817
Aug.24-24 (313+41=$354) 1*354
Second part
2040+480+2817+354=5691
5691/31(days)=183.6 (Round to nearest cent)
Third Part
I=PRT
183.6*.18*31/365=2.8068 (Round to nearest cent)
Final Answer that I got was 2.80
However, this is incorrect. I am not sure what I am doing wrong.
THANKS!
I haven't don't simple interest in a while so don't quote me on this but I think you're missing the T part of the equation eg. P x R x T = I.
rate is 18x31/365,
P is ...
but where is T in your final equation?
hope that was relevant.
To calculate the credit card finance charge using the average daily balance method, you need to consider the daily balances and the number of days that each balance is held during the billing cycle. Here's how you can calculate it step by step:
1. Calculate the daily balances:
- August 1-4: Balance of $590 for 4 days = $590 * 4 = $2360
- August 5-8: Balance of $680 for 4 days = $680 * 4 = $2720
- August 9-13: Balance of $120 for 5 days = $120 * 5 = $600
- August 14-23: Balance of $313 for 10 days = $313 * 10 = $3130
- August 24-31: Balance of $354 for 8 days = $354 * 8 = $2832
2. Calculate the sum of the daily balances:
$2360 + $2720 + $600 + $3130 + $2832 = $11642
3. Calculate the average daily balance:
$11642 / 31 days = $375.23
4. Calculate the credit card finance charge using the formula I = PRT:
I = $375.23 * 0.18 * (31 / 365)
I = $6.31 (rounded to the nearest cent)
Therefore, the credit card finance charge for the month of August is $6.31.