Question

A credit card calculates interest using the average daily balance method. The card charges 23.4% annual interest rate on the average daily balance. The following transactions occurred during the March 1 – March 31 billing period.


Find the average daily balance for the billing period. Round to the nearest cent.

Answer 1

Well, do it. What is the balance every day? It may stay level for several days. It changes only when there is a payment or a charge.

Answer 2

Days 1-4 6310 times 4 24520
Days 5-6 6530 times 2 13060
Days 7-17 6470 times 11 32350
Days 18-25 6380 times 8 51040
Days 26-31 6150 times 6 67650

Divided by 31 = 4923.23

now what?????

Answer 3

(4923.23) (1 + 0.234)^(1/12) = 5010.25

Answer 4

maybe? lol

Answer 5

1) You missed the $400 credit on Day 4
2) Not really close. Be very careful. It is tedious work.

$6,310 * 3
$5,910 * 3
$5,970 * 5
$6,060 * 9
$6,290 * 11

Total is $190,240
Average is $6,136.774 ==> $6,136.77

Answer 6

Typically, Credit Card interest is calculated as a daily rate and multiplied by the days in the period. This accounts for months of different sizes.

0.234 / 365 = 0.0006410959

6136.77 * 0.0006410959 * 31 = 121.96200067353 ==> $121.96

sourwing's monthly calculation wasn't too far off. The new balance was the result, not just the interest. Subtracting, 5010.25 - 4923.23 = 87.02, but we already established that we weren't using the right numbers.

(6136.77/4923.23)*87.02 = $108.47 -- See, it wasn't too far off, after a couple of data repairs.

Answer 7

A credit card calculates interest using the average daily balance method. The card charges 19.0% annual interest rate on the average daily balance. The following transactions occurred during the June 1 – June 30 billing period.


The balance at the end of June was $1,910.27, and the interest to be paid on July 1 is $28.20. Find the balance due on July 1. Round to the nearest cent as needed.

Answer 8

Is this one done the same way? @tkhunny

Answer 9

When it says credit (ex:$400 credit) that means subtract?

Answer 10

One thing of some concern. Just EXACTLY when do these transactions count? For example, a $1300 payment on June 6 means what? Usually, the argument is "End of Day" vs. "Beginning of Day". I think , generally, End of Day is FAR more common. This might suggest that the last problem was off by one day in some respects. The payment and charges may have occurred one day too early.

In other words, that problem was done using "Beginning of Day" transactions. Using End of Day transactions means everything is counted on the day after it happens. You just have to pay attention to that and keep track of exactly what it means.

Answer 11

It doesnt say anything about beginning of day or end of day.

Answer 12

This is not unusual. You have to make up your mind and be consistent. It will be helpful to include this assumption in your work. In this way, you can support your result.

Say
Day 1 1000
Day 2 Pay 100
Day 4 Charge 50

Beginning of Day gives

1000 for day 1
900 for day 2
900 for day 3
950 for day 4
950 for day 5

End of Day gives

1000 for day 1
1000 for day 2
900 for day 3
900 for day 4
950 for day 5

In the real world, It is also possible that there is some variation. Maybe charges go in immediately, but payments wait of the end of the day. You REALLY have to read your agreement carefully to see EXACTLY what is going on.