Use the average daily balance method to compute the amount of interest that will be charged at the end of the billing cycle. Use a 365-day year.
-Month: May (31 days)Previous month's balance: $960
A)$7.88
B)$12.35
C)$11.31
D)$8.76

Question

Use the average daily balance method to compute the amount of interest that will be charged at the end of the billing cycle. Use a 365-day year.
-Month: May (31 days)Previous month's balance: $960 
A)$7.88 
B)$12.35 
C)$11.31 
D)$8.76

Quizplus · Accepted Answer

First, we calculate the average daily balance for the month of May:

Average daily balance = (previous month's balance x number of days in billing cycle + current month's balance x number of days in billing cycle) / number of days in billing cycle

= (960 x 31 + 0 x 0) / 31

= $960

Next, we can use the following formula to calculate the interest charged:

Interest charged = average daily balance x daily interest rate x number of days in billing cycle

We need to find the daily interest rate, which is the annual interest rate divided by the number of days in a year:

Daily interest rate = (18% / 100) / 365

= 0.000493

Finally, we can plug in the values:

Interest charged = 960 x 0.000493 x 31

= $11.31

Therefore, the answer is C) $11.31.

Use the Average Daily Balance Method to Compute the Amount