On October 1ˢᵗ Joe charged $900 to his credit card, on October 10ᵗʰ he charged another $1300 to his credit card, and on October 15ᵗʰ he charged an additional $100. His credit card charges him an Annual Percentage Rate (APR) of 18% compounded monthly. Using the Average Daily Balance Method calculate Joe's finance charge for the month of October.

Question

Quizplus · Accepted Answer

To calculate Joe's finance charge for the month of October using the Average Daily Balance Method, we need to first calculate his average daily balance by adding up each day's balance and dividing by the number of days in the billing cycle.

Here's how to calculate Joe's average daily balance for October:

Oct. 1: $900
Oct. 2-9: $900
Oct. 10: $2200
Oct. 11-14: $2200
Oct. 15-31: $2300

Total balance for October = $10,700
Number of days in October = 31
Average daily balance = $10,700 / 31 = $345.16

Now we can use the formula for the finance charge:

Finance charge = Average daily balance x APR x days in billing cycle / 365

Plugging in the numbers:

Finance charge = $345.16 x 0.18 x 31 / 365
Finance charge = $28.16

Therefore, the best choice is B: $28.16.

On October 1ˢᵗ Joe Charged $900 to His Credit Card