Question

the following table shows the balance on a credit card over the period of 1 month, that charges a 20% apr (interest rate).

days	balance	description
6 - 20	$350	$150 purchase
21 - 30	$150	$200 payment

what is the finance charge, on the average daily balance, for this card over this 1 month period?
finance charge = $?
round to the nearest cent.

Explanation:

Step1: Calculate total balance days

For days 1 - 5: $200\times5 = 1000$
For days 6 - 20: $350\times15 = 5250$ (since 20 - 6 + 1 = 15 days)
For days 21 - 30: $150\times10 = 1500$ (since 30 - 21 + 1 = 10 days)

Step2: Find average daily balance

Total balance - days: $1000 + 5250 + 1500 = 7750$
Average daily balance: $\frac{7750}{30} \approx 258.333...$

Step3: Calculate monthly interest rate

APR is 20%, so monthly rate: $\frac{20\%}{12} = \frac{0.2}{12} \approx 0.0166667$

Step4: Compute finance charge

Finance charge = average daily balance × monthly rate: $258.333... \times 0.0166667 \approx 4.30555...$

Answer:

$\$4.31$ (rounded to nearest cent)