Question

Dennis has a credit card with an APR of 10.14% and a billing cycle of 30 days. The following table shows his transactions with that credit card in the month of November.

Date
Amount ($)
Transaction
11/1
517.87
Beginning balance
11/9
31.63
Purchase
11/23
64.10
Purchase
11/26
65.75
Payment

If the finance charge for November is $3.82, which method of calculating the finance charge does Dennis’s credit card company use?
a.
adjusted balance method
b.
previous balance method
c.
daily balance method
d.
there is not enough information to determine which method was used

Answer 1

Answer: a. adjusted balance method.

Work:
- Monthly rate = 10.14%/12 = 0.00845.
- Adjusted balance = beginning balance − payment = 517.87 − 65.75 = 452.12.
- Finance charge = 452.12 × 0.00845 ≈ $3.82.

(For comparison: previous balance method would charge 517.87×0.00845 ≈ $4.38; daily/average‑daily balance ≈ $4.56.)