Question

A credit card calculates interest using the average daily balance method. The card charges 13.5% annual interest rate on the average daily balance. The following transactions occurred during the June 1 – June 30 billing period.

The average daily balance for the billing period is $1,969.70. Find the interest to be paid on July 1, the next billing date. Round to the nearest cent.

How do you solve for the interest and which piece of information is the principle? I am having troubles putting it into a formula

Answer 1

So you are using the A=P(1+r)^t equation right?

Answer 2

Yes

Answer 3

I am just unsure where to plug stuff in

Answer 4

ahhh oki
so you know the annual rate means that for A=P(1+r/n)^nt
Annual rate is 13.5% convert to decimal then you get, 0.135 plug that into the r

Answer 5

because r stands for Rate! :D

So now you don't the principle so P is left as P because p is kind of like the Y-intercept, the starting value.

Answer 6

Find the difference between the time to get to the T which is time that you want to plug in to see which Y OR money you have.

Also since this is annual, annual stands for Month so the N will be how much it's compounded so you put 12 for 12 months. Plug all those in, and you get your answer.

Answer 7

So does that seem good and okay? understand? :)

Answer 8

Kind of.... So if you are trying to solve for P... and you switch around the formula to solve for P.. I am still lost as to how you get "A" or is A already 1969.70 ?

Answer 9

Yes! A is already that!!

Answer 10

You need to find the principle, if they gave you two unknown values that would be hard to solve.

Answer 11

so would it be:

1969.70 = P (1 + .135/12) ^ (12) (T)

Answer 12

I am still confused on how you got T.. or maybe i am over thinking it

Answer 13

ahhh T is really easy! It's just the time that you already have.

It's like a normal x equation, you want to know what year it is when x is 5 so you plug in 5 and look at the values of y. X is you time period that you plug in, the compounded annually is just how many times your money is compounded

Answer 14

ALSO ONE OTHER THING, BIG MISTAKE, ANNUALLY IS YEARLY SO THE N is 1!!! NOT 12, 12 should be monthly, I was thinking about some other question. But do you understand? :3

Answer 15

Ok so then what is T?

Answer 16

I'm sorry for all the questions, ive been working on this for last 5 hours hah so im kind of brain fried

Answer 17

ahh that's okay, I understand, July 1 is actually the T. lol, thats the time of the A that you got ;p

Answer 18

ok so if july 1st is T and the billing period was 30 days.. is it 30 as well? or...

Answer 19

or is 1 as well because it is only for 1 day?

Answer 20

Shoot internet went off weird

Answer 21

Well you have to find what amount of months make up an year. I know this is hard, but math is weird sometimes. Because it's compounded yearly.

Answer 22

ok so is T= 12 and n=1

Answer 23

No 12 is in none of this. Compounded MONTHLY would make n into 12. Are you sure they gave you now specific date, but just the date between june ?

Answer 24

this is the graph that came with it

Answer 25

ahhhhhh

Answer 26

oki my internet is really bad, I'll try to answer this later, but you are on the right track but what I said before, find the days in between June 1 – June 30