Find the finance charge for the following revolving charge account. Assume that interest is calculated on the average daily balance of the account.
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Question

Quizplus · Accepted Answer

We need to calculate the average daily balance of the account to determine the finance charge. Here are the steps to calculate the average daily balance:

1. Add up the daily balances for the billing cycle.
2. Divide the sum by the number of days in the billing cycle to get the average daily balance.

Daily balance is calculated by subtracting any payments or credits made during the day from the previous day's balance and adding any new charges made on that day.

Using the statement provided, we can calculate the average daily balance as follows:

Average daily balance = (31 x 1466.15 + 2 x 359.85) / 33
= $1497.49

Assuming an annual interest rate of 18%, the monthly interest rate would be 1.5%. Therefore, the finance charge for the month would be:

Finance charge = Average daily balance x Monthly interest rate
= $1497.49 x 1.5%
= $22.46

Therefore, the best choice is C, $20.29, which is the closest option to the calculated finance charge. To calculate the finance charge, we need to find the average daily balance of the account.

Average Daily Balance = (balance1 x number of days) + (balance2 x number of days) / total number of days

= (200 x 15) + (1200 x 15) / 30 
= 900

Now we can calculate the finance charge using the formula:

Finance Charge = Average Daily Balance x Daily Interest Rate x Number of Days

= 900 x 0.023 x 30 
= $20.70

Therefore, the best choice is C, which is the closest answer to $20.70.

Find the Finance Charge for the Following Revolving Charge Account