Question

Situation #2: Credit Card Bills Show all work, even the work you put into the calculator. The majority of points given will be for your work, not for the answer Assume you open a credit card at the beginning of the year: January 15, with an opening balance of $0.00. The annual interest rate on the card is 18%, and your bill is due each month. Starting in January the following charges and credits occur on your account: Date Credit Charge January 5 $45- Gas January 9 $115-Clothes January 13 $85-Groceries January 14 S65-Return clothes January 18 $11-Lunch January 25 $32-Gas January 27 $127-Boots January 29 $200-Payment February 2 $38-Gas February 6 $58-Groceries February 9 $199- Car Insurance February 14 $75-B day Money February 17 $28-Gas February 22 $6-Lunch February 23 $35-Dinner & Movie February 26 $78-Groceries February 28 $150-Payment Compare what your Finance Charge will be for the month of March using the Average Daily Balance Method and the Unpaid Balance Method. Assume the year is not leap year. * Also assume the only things you charged/paid are listed above.

Answer 1

Credit card balance as at March 1 = $ 367:

Date	Activity	Amount ($)
5-Jan	Charge	45
9-Jan	Charge	115
13-Jan	Charge	85
14-Jan	Payment/Refund	(65)
18-Jan	Charge	11
25-Jan	Charge	32
27-Jan	Charge	127
29-Jan	Payment/Refund	(200)
2-Feb	Charge	38
6-Feb	Charge	58
9-Feb	Charge	199
14-Feb	Payment/Refund	(75)
17-Feb	Charge	28
22-Feb	Charge	6
23-Feb	Charge	35
26-Feb	Charge	78
28-Feb	Charge	(150)
	Balance as on Mar1	367

No transactions occurred in the month of March:

Average Daily Balance Method:

Rate of Interest - 18% per annum

Daily Rate = 18/365 days = 0.0493% (rounded off to 4 decimal places)

Total number of days in the month of March - 31 days

Finance charge for the month of March = $367*0.0493%*31 = $ 5.61(rounded off to 2 decimal places)

Unpaid Balance Method:

Rate of Interest - 18% per annum

Monthly Rate = 18/12 = 1.5%

Finance charge for the month of Mar = $367*1.5% = $ 5.51(rounded off to 2 decimal places)

Since there are no transactions in the month of March, there is no significant difference between both method of computing finance charge.