Question

Roger has a credit card with an APR of 19.40% and a billing cycle of 30 days. The following table shows his transactions with that credit card in the month of June.

Date
Amount ($)
Transaction
6/1
265.40
Beginning balance
6/6
90.00
Payment
6/16
43.33
Purchase
6/22
37.71
Purchase

If Roger’s finance charge for June is $3.56, which method of calculating the finance charge does Roger’s credit card company use?
a.
daily balance method
b.
adjusted balance method
c.
previous balance method
d.
there is not enough information to determine which method was used

Answer 1

Answer: a. daily balance method.

Reason: Using the daily-balance method (APR 19.40% → daily rate = 0.194/365), the daily balances are:
- 6/1–6/5 (5 days): $265.40
- 6/6–6/15 (10 days): $175.40 (after $90 payment)
- 6/16–6/21 (6 days): $218.73 (after $43.33 purchase)
- 6/22–6/30 (9 days): $256.44 (after $37.71 purchase)

Sum of daily balances = 6701.34, average daily balance = 6701.34/30 = 223.378.
Finance charge ≈ average daily balance × APR × (30/365) ≈ 223.378 × 0.194 × (30/365) ≈ $3.56.

(Previous-balance gives ≈ $4.29 and adjusted-balance ≈ $2.84, so the daily-balance method matches $3.56.)