Andrew is on a 30-day billing cycle. His credit card has an APR of [tex]$16.60 \%$[/tex] and computes finance charges using the previous balance method. The table below shows transactions that Andrew made in March. Based on the information in the table, what will Andrew's March finance charge be?
| Date | Amount ($) | Transaction |
| :----- | :--------- | :---------------- |
| 3 / 1 | 1,794.30 | Beginning balance |
| 3 / 6 | 440.15 | Purchase |
| 3 / 9 | 35.65 | Purchase |
| 3 / 22 | 250.00 | Payment |
| 3 / 25 | 51.71 | Purchase |
A. [tex]$46.07[/tex]
B. [tex]$28.66[/tex]
C. [tex]$21.36[/tex]
D. [tex]$24.82[/tex]
Answer (2)
Calculate the daily interest rate: 365 0.1660 ≈ 0.00045479 .
Calculate the finance charge: 1794.30 × 0.00045479 × 30 ≈ 24.48 .
Andrew's March finance charge is approximately $,24.48.
The final answer is $24.48 .
Explanation
Calculate the Daily Interest Rate First, we need to determine the daily interest rate. The Annual Percentage Rate (APR) is given as 16.60% . To find the daily rate, we divide the APR by 365 (the number of days in a year):
Daily Rate Calculation D ai l y R a t e = 365 A PR = 365 0.1660 ≈ 0.00045479
Calculate the Finance Charge Next, we calculate the finance charge using the previous balance method. The previous balance is the balance at the beginning of the billing cycle, which is $,1,794.30. The finance charge is calculated by multiplying the previous balance by the daily rate and the number of days in the billing cycle (30 days).
Finance Charge Calculation F inan ce C ha r g e = P re v i o u s B a l an ce × D ai l y R a t e × N u mb ero f D a ys
F inan ce C ha r g e = 1794.30 × 0.00045479 × 30
F inan ce C ha r g e ≈ 24.48
Final Answer Therefore, Andrew's March finance charge will be approximately $,24.48.
Examples
Understanding credit card finance charges is essential for managing personal finances. For instance, if you carry a balance of $,1,794.30 on your credit card with an APR of 16.60% and a 30-day billing cycle, you'll be charged approximately $,24.48 in interest. By understanding how these charges are calculated, you can make informed decisions about your spending and repayment strategies, potentially saving money and avoiding debt. This knowledge is applicable in everyday financial planning, helping you to minimize interest payments and maintain a healthy credit score.
Andrew's March finance charge, calculated using the previous balance method, is approximately $24.48. This was derived from the daily interest rate based on an APR of 16.60% over a 30-day billing cycle. Hence, the answer corresponds to option D: $24.82, which is the closest provided choice.
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