Question

Hannah has a credit card with an APR of 11.90% and a billing cycle of 30 days. The following table shows Hannah’s transactions in the month of April.

Date
Amount ($)
Transaction
4/1
322.95
Beginning balance
4/10
19.87
Purchase
4/14
50.00
Payment
4/19
71.21
Purchase

If Hannah’s credit card company calculates finance charges using the daily balance method, what will her April finance charge be?
a.
$2.71
b.
$3.20
c.
$3.30
d.
$3.61

Answer 1

First find the balance for each day segment:

- 4/1–4/9 (9 days): $322.95
- 4/10–4/13 (4 days): $322.95 + $19.87 = $342.82
- 4/14–4/18 (5 days): $342.82 − $50.00 = $292.82
- 4/19–4/30 (12 days): $292.82 + $71.21 = $364.03

Sum of daily balances = 322.95(9) + 342.82(4) + 292.82(5) + 364.03(12) = $10,110.29
Average daily balance = 10,110.29 / 30 = $337.01 (approx).

Daily rate = APR/365 = 0.119/365. Finance charge = avg daily balance × daily rate × 30
= 337.01 × 0.119 × (30/365) ≈ $3.30.

Answer: c. $3.30