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.) $500 balance, 20% rate, $50 payment, previous balance method
HELP!!
What are they asking you to calculate?
All you have said is the amount of the payment, the balance and interest rate, and that they use the previous balance method.
Well that is the question.I really do not know.
ok I came up with I=Prt =500(.20)(1/12)=$8.30 is this correct.
If what they want is the finance charge in the next billing cycle, that will be $450 * (0.20)/12 = $7.50
For the billing cycle of the current bill, the finance charge depends upon the previous unpaid balance. If that previous balance was $500, then your calculation is correct.
To calculate the monthly finance charge for a credit card transaction using the previous balance method, you need to follow these steps:
Step 1: Determine the average daily balance.
The average daily balance is calculated by taking the sum of the daily balances over the billing cycle and dividing it by the number of days in the billing cycle. In this case, the billing cycle is 30 days.
Step 2: Calculate the daily periodic rate.
The daily periodic rate is simply the annual interest rate divided by the number of days in a year. In this case, the annual interest rate is 20%, so the daily periodic rate would be 20% / 365 = 0.05479%.
Step 3: Calculate the daily finance charge.
To calculate the daily finance charge, you multiply the average daily balance from step 1 by the daily periodic rate from step 2. This gives you the finance charge for each day.
Step 4: Calculate the finance charge for the billing cycle.
To get the total finance charge for the entire billing cycle, you multiply the daily finance charge from step 3 by the number of days in the billing cycle (30 days in this case).
Let's go ahead and calculate the monthly finance charge for the given credit card transaction:
Step 1: Average Daily Balance
In this case, the balance is $500. Since there's a payment of $50, the average daily balance is calculated as: ($500 x 30) - ($50 x 10) / 30 = $15,000 - $500 / 30 = $14,500 / 30 = $483.33
Step 2: Daily Periodic Rate
The annual interest rate is 20%, so the daily periodic rate is calculated as 20% / 365 = 0.05479%.
Step 3: Daily Finance Charge
The daily finance charge is calculated by multiplying the average daily balance from Step 1 by the daily periodic rate from Step 2. So, the daily finance charge is: $483.33 x 0.05479% = $0.26 (rounded to the nearest cent).
Step 4: Finance Charge for the Billing Cycle
To calculate the finance charge for the entire billing cycle, multiply the daily finance charge from Step 3 by the number of days in the billing cycle (30 days): $0.26 x 30 = $7.80 (rounded to the nearest cent).
The monthly finance charge for this credit card transaction, using the previous balance method, is approximately $7.80.