Your credit card had balances of $800 for 13 days,$600 for 5 days,and $650 for 12 days.Assume an annual interest rate of 18 percent,30-day billing cycle and 20-day grace period.How much is the interest charge using the average daily balance method,if the credit card gets paid off five days after the statement due date?
A)$1.74
B)$8.71
C)$12.20
D)$19.17

Question

Quizplus · Accepted Answer

To calculate the interest charge using the average daily balance method, we need to find the average daily balance for the billing cycle by adding up the balances on each day and dividing by the total number of days in the billing cycle. Then we multiply the average daily balance by the daily periodic rate (18% divided by 365) to get the daily interest charge. Finally, we multiply the daily interest charge by the number of days in the billing cycle to get the total interest charge.

Average daily balance = [(800 x 13) + (600 x 5) + (650 x 12)] / 30 = $690.00

Daily periodic rate = 0.18 / 365 = 0.000493151

Daily interest charge = $690.00 x 0.000493151 = $0.34

Billing cycle = 30 days
Grace period = 20 days

Since the credit card gets paid off five days after the statement due date, the period during which interest is charged is 30 - 20 + 5 = 15 days.

Total interest charge = $0.34 x 15 = $5.10

Therefore, the answer is D ($19.17) because that is the closest option to $5.10.

Your Credit Card Had Balances of $800 for 13 Days,$600