Question

eBook Do the Math 7-3 Average Daily Balance and Finance Charges Kayla Sampson, an antiques dealer from Mankato, Minnesota, received her monthly billing statement for April for her MasterCard account. The statement indicated that she had a beginning balance of $600, on day 5 she charged $150, on day 12 she charged $300, and on day 15 she made a $250 payment. Out of curiosity, Kayla wanted to confirm that the finance charge for the billing cycle was correct (assume a 30-day month and that the card balance is actually reduced on the day the payment is made).

What was Kayla's average daily balance for April without new purchases? Round your answer to the nearest dollar. Use rounded answer for later calculations.

$ What was her finance charge on the balance in part (a) if her APR is 19.5 percent? Round your answer to the nearest cent.

$ What was her average daily balance for April with new purchases? Round your answer to the nearest dollar. Use rounded answer for later calculations.

$ What was her finance charge on the balance in part (c) if her APR is 19.5 percent? Round your answer to the nearest cent. $

Answer 1

Part 1)

The value of Kayla's average daily balance for April without new purchases is calculated as follows:

Kayla's Average Daily Balance for April without New Purchases = Balance Upto the end of 14th Day*14/30 + Balance from 15th Day till the End of Month*16/30

Here, Balance Upto the end of 14th Day = $600 and Balance from 15th Day till the End of Month = 600 - 250 = $350 [the balance is immediately reduced after payment]

Using these values in the above formula, we get,

Kayla's Average Daily Balance for April without New Purchases = 600*14/30 + 350*16/30 = $467

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Part 2)

The value of finance charge on the balance in part (a) if APR is 19.5 percent is arrived as below:

Value of Finance Charge = Average Daily Balance without New Purchases*APR*1/12 = 467*19.5%*1/12 = $7.58

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Part 3)

The average daily balance for April with new purchases is calculated as follows:

Average Daily Balance with New Purchases = Balance Upto the end of 4th Day*4/30 + Balance from 5th Day Upto the End of 11th Day*7/30 + Balance from 12th Day Upto the End of 14th Day*3/30 + Balance from 15th Day till the End of Month*16/30

Here, Balance Upto the end of 4th Day = $600, Balance from 5th Day Upto the End of 11th Day = 600 + 150 =$750, Balance from 12th Day Upto the End of 14th Day = 750 + 300 = $1,050 and Balance from 15th Day till the End of Month = 1,050 - 250 = $800

Using these values in the above formula, we get,

Average Daily Balance with New Purchases = 600*4/30 + 750*7/30 + 1,050*3/30 + 800*16/30 = $787

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Part 4)

The value of finance charge on the balance in part (c) if APR is 19.5 percent is arrived as below:

Value of Finance Charge = Average Daily Balance with New Purchases*APR*1/12 = 787*19.5%*1/12 = $12.78