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


Please select the best answer from the choices provided

A
B
C
D

Answer 1

Compute the monthly rate = APR/12 = 0.1622/12 = 0.0135166667 (and daily rate = APR/365).

- Previous balance method: finance charge = 857.14*(APR/12)
= 857.14*0.0135166667 ≈ $11.59

- Adjusted balance method: subtract payment before computing charge: adjusted balance = 857.14 − 50 = 807.14
finance charge = 807.14*(APR/12) ≈ 807.14*0.0135166667 ≈ $10.91

- Daily balance method: sum daily balances /30 = average daily balance
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 = 884.09
11/24–11/30 (7 days): 884.09+43.19 = 927.28
Sum = 27,121.13 → average = 27,121.13/30 = 904.0377
finance charge = average * (APR/365)*30 = average * APR*(30/365)
≈ 904.0377 * 0.1622*(30/365) ≈ $12.05

Thus the three charges are $10.91, $11.59, and $12.05. The one that is neither lowest nor highest is $11.59.

Answer: B.