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. Assume 365 days in a year. (Round your answer to the nearest cent.)
$3,000 balance, 21% rate, $1,500 payment, average daily balance method
$ 1
Van you please help me with this problem
To calculate the monthly finance charge using the average daily balance method, you will need to follow these steps:
1. Determine the number of days in the billing cycle: In this case, the billing cycle is assumed to be 30 days.
2. Calculate the average daily balance: To calculate the average daily balance, you need to take the sum of the balances for each day in the billing cycle and divide it by the number of days in the cycle. In this case, the initial balance is $3,000 and the payment made is $1,500. Assuming the payment takes 10 days to be received and recorded, the balance for the first 20 days of the billing cycle is $3,000. For the remaining 10 days, the balance is $1,500. So, the average daily balance is:
(20 days * $3,000 + 10 days * $1,500) / 30 days = $2,000
3. Calculate the monthly interest rate: The annual interest rate is given as 21%. To find the monthly interest rate, divide the annual rate by 12. In this case, the monthly interest rate is:
21% / 12 = 1.75%
4. Calculate the finance charge: To calculate the finance charge, multiply the average daily balance by the monthly interest rate and the number of days in the billing cycle. In this case:
$2,000 * 1.75% * 30 / 365 = $2.05
Therefore, the monthly finance charge for this credit card transaction is $2.05.