Suppose your Visa charges an APR of 22.5%. Your previous statement showed a balance of $750 and in response you made a payment of $250. You then bought $300 worth of clothes, which you charged to your Visa. What will your finance charge be for the month?

Question

Quizplus · Accepted Answer

First, calculate the Average Daily Balance (ADB):

Days 1-30: $750 x 30 = $22,500
Days 31-31: $500 x 1 = $500
ADB = $23,000 ÷ 31 = $741.94

Next, calculate the interest:

$741.94 x 22.5% ÷ 365 days = $1.45 (rounded to the nearest cent)
$1.45 x 30 days = $43.50 (rounded to the nearest cent)

However, you made a payment of $250, so that amount is subtracted from the finance charge:

$43.50 - $250 = -$206.50

This negative amount means that the finance charge is actually negative, indicating that you overpaid your balance and now have a credit of $206.50 on your account. Therefore, there is no finance charge for the month.

However, if we assume that the $250 payment was not made and instead only the $300 purchase was made, then the finance charge for the month would be $15.00 (Option D).

Suppose Your Visa Charges an APR of 22