Question

On October 1st Joe charged $900 to his credit card, on October 10th he charged another $1,300 to his credit card, and on October 15th he charged an additional $100. His credit card charges him an Annual Percentage Rate (APR) of 18% compounded monthly. Using the Average Daily Balance Method calculate Joe's finance charge for the month of October.

Answer 1

Answer:

interest expense for October $ 27.25

Explanation:

       900

+  1,300 x 20/30

+     100 x 15/30    

1,816.67 average balance

Now we multiply this average balance by the interest rate of the credit card:

1,816.67 x 0.18/ 12 = 27.25

Answer 2

The finance charge for the month of October is $28.16.

The Average Daily Balance Method does help to calculates the interest charges after considering the balance invested or owed at the end of each day of the billing period,

Balance from the method = ($900*31 + $1,300*22 + $100*17) / 31

Balance from the method = $58,200 / 31

Balance from the method = 1877.41935484

Balance from the method = $1,877.42

Monthly Interest = 18% / 12

Monthly Interest = 1.5%

Interest charged for October = Monthly Interest * Balance from the method

Interest charged for October = 1.5%*1877.419355

Interest charged for October = $28.16

Therefore, the finance charge for the month of October is $28.16.

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