Fred has a credit card which uses the average daily balance method,has a 30-day billing period,a 21-day grace period and charges 21 percent annual interest calculated (but not compounded)daily.His average daily balance for the billing period was $7900,and he could not pay it off until received his pay cheque eight days after the statement due date.How much interest does he owe?
A)$268.17
B)$172.72
C)$136.36
D)$36.36

Question

Quizplus · Accepted Answer

To calculate the interest, we need to first find the average daily balance for the interest period. Since it's an average daily balance method, we need to divide the total balance by the number of days in the billing cycle:

$7900 / 30 = $263.33

Now, we need to calculate the interest on this balance at a rate of 21% annually, but calculated daily:

(0.21 / 365) x $263.33 x 8 = $3.20

This is the interest accrued during the grace period. Now, we need to calculate the interest for the period between the closing date and the payment date. Since this is only 8 days, we can just multiply the average daily balance by the interest rate and the number of days:

(0.21 / 365) x $7900 x 8 = $45.25

Finally, we can add the two amounts of interest to get the total interest owed:

$3.20 + $45.25 = $48.45

Therefore, the answer is A) $268.17

Fred Has a Credit Card Which Uses the Average Daily