Question

Calvin’s credit card computes finance charges using the daily balance method. His card has a billing cycle of 30 days and an APR of 14.75%. The following table details Calvin’s transactions in the month of September.

Date
Amount ($)
Transaction
9/1
716.54
Beginning balance
9/7
84.94
Purchase
9/12
15.69
Purchase
9/20
200.00
Payment

What will Calvin’s starting balance be next month?
a.
$617.17
b.
$624.74
c.
$625.91
d.
$623.52

Answer 1

Compute the average daily balance and finance charge.

Daily balances:
- 9/1–9/6 (6 days): 716.54
- 9/7–9/11 (5 days): 716.54 + 84.94 = 801.48
- 9/12–9/19 (8 days): 801.48 + 15.69 = 817.17
- 9/20–9/30 (11 days): 817.17 − 200.00 = 617.17

Sum of daily balances = 716.54·6 + 801.48·5 + 817.17·8 + 617.17·11 = 21,632.87
Daily rate = 0.1475/365
Finance charge = 21,632.87 · (0.1475/365) ≈ $8.74

Ending balance = 617.17 + 8.74 = $625.91

Answer: c. $625.91