Question

Yolanda’s credit card has an APR of 16.22% and a billing cycle of 30 days. The table below shows her transactions with that credit card in the month of November.

Date
Amount ($)
Transaction
11/1
857.14
Beginning balance
11/3
76.95
Purchase
11/10
50.00
Payment
11/24
43.19
Purchase

Find Yolanda’s finance charge in November using the previous balance method, the adjusted balance method, and the daily balance method. Among those three possible finance charges, what is the value of the one which is neither lowest nor highest?
a.
$12.53
b.
$11.59
c.
$12.05
d.
$10.91

Answer 1

Monthly periodic rate = 0.1622/12 = 0.0135166667 (≈1.351667%).

1) Previous-balance method
Finance charge = beginning balance × monthly rate
= 857.14 × 0.0135166667 ≈ 11.5857 → $11.59

2) Adjusted-balance method
Adjusted balance = beginning balance − payments = 857.14 − 50.00 = 807.14
Finance charge = 807.14 × 0.0135166667 ≈ 10.9098 → $10.91

3) Daily-balance method
Daily balances:
- 11/1–11/2 (2 days): 857.14
- 11/3–11/9 (7 days): 857.14 + 76.95 = 934.09
- 11/10–11/23 (14 days): 934.09 − 50.00 = 884.09
- 11/24–11/30 (7 days): 884.09 + 43.19 = 927.28
Sum of daily balances = 27,121.13; finance charge = (APR/365) × sum = (0.1622/365) × 27,121.13 ≈ $12.05

Ordering: $10.91 (adjusted) < $11.59 (previous) < $12.05 (daily). The value that is neither lowest nor highest is $11.59.

Answer: b. $11.59