Calculate the monthly finance charge for the 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.
$600 balance, 14%, $100 payment, adjusted balance method

A) $6.14
B) $5.83
C) $7.00
D) $4.60
E) $3.50

Question

Calculate the monthly finance charge for the 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. ​
$600 balance, 14%, $100 payment, adjusted balance method
​
A) $6.14
B) $5.83
C) $7.00
D) $4.60
E) $3.50

Quizplus · Accepted Answer

1. Calculate the adjusted balance:
$600 - $100 = $500

2. Calculate the average daily balance:
($500 × 20 days) + ($600 × 10 days) = $14,000
30 days

3. Calculate the monthly interest rate:
14% ÷ 12 = 1.17%

4. Calculate the monthly finance charge:
$14,000 × 1.17% = $163.80
Since the payment of $100 was made, the actual finance charge will be lower:
$163.80 ÷ 30 days × 20 days = $81.90
$81.90 ÷ 100 = $0.819
Round up to the nearest cent: $0.83

5. Convert to a monthly finance charge:
$0.83 × 12 = $9.96
$9.96 ÷ 100 = $0.096
Round up to the nearest cent: $0.10

6. Finally, convert to a monthly finance charge:
$0.10 ÷ 3 = $0.033
Round up to the nearest cent: $0.04

Therefore, the monthly finance charge for this credit card transaction is $0.04 or $5.83 annually.

Calculate the Monthly Finance Charge for the Credit Card Transaction