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. Round your answer to the nearest cent. $\begin{array}{l}
\text { cellpadding="0" cellspacing="0" width=" }57\% \text { " border="0" }\\
\text { Balance Rate Payment Method }\
\$ 8,000 \quad 21 \% \quad \$ 1,500\quad \begin{array} { l }
\text { Average daily } \
\text { balance }
\end{array}
\end{array}$
A) $118.24
B) $123.40
C) $140.00
D) $113.75
E) $120.82

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. Round your answer to the nearest cent. $\begin{array}{l}
\text { cellpadding="0" cellspacing="0" width=" }57\% \text { " border="0"> }\\
\text { Balance Rate Payment Method }\
\$ 8,000 \quad 21 \% \quad \$ 1,500\quad \begin{array} { l } 
\text { Average daily } \
\text { balance }
\end{array}
\end{array}$
A) $118.24
B) $123.40
C) $140.00
D) $113.75
E) $120.82

Quizplus · Accepted Answer

First, we need to find the average daily balance:

- From Day 1 to Day 20: $8,000
- From Day 21 to Day 30: $6,500

To find the average daily balance, we add up the balances for each day and divide by the number of days in the billing cycle:

$(8,000 \cdot 20 + 6,500 \cdot 10)/30 = 7,166.67$

Now, we can calculate the monthly finance charge using the formula:

Monthly finance charge = Average daily balance x Monthly rate x Number of days in the billing cycle

Monthly rate = Annual rate / 12 = 21% / 12 = 1.75%

Number of days from statement date to payment received = 30

Number of days from payment received to next statement date = 20

Monthly finance charge = $7,166.67 x 1.75% x 30/30 = $125.41

To account for the 10-day gap between the end of the billing cycle and the payment being received, we need to subtract the portion of the finance charge that is attributed to the payment period:

$125.41 x 20/30 = $83.61

Finally, we round to the nearest cent:

$83.61 rounded to the nearest cent is $83.60

Adding this to the minimum payment of $1,500, we get a total payment of $1,583.60.

Thus, the monthly finance charge for the credit card transaction is $83.6 and the best choice is E.

Calculate the Monthly Finance Charge for the Credit Card Transaction