Calculate the monthly finance charge for the credit card transaction. Assume that it takes 10 days for a payment to be received and recorded and that the month is 30 days long. Round your answer to the nearest cent. $\begin{array}{l}
\text { cellpadding="0" cellspacing="0" width=" } 62 \% \text { " border="0" }\\
\text { Balance Rate Payment Method }\
\$ 1,200 \quad 20 \% \quad \$ 400 \quad \begin{array} { l }
\text { Average daily } \
\text { balance }
\end{array}
\end{array}$
A) $20.00
B) $15.34
C) $19.60
D) $13.33
E) $15.47

Question

Calculate the monthly finance charge for the credit card transaction. Assume that it takes 10 days for a payment to be received and recorded and that the month is 30 days long. Round your answer to the nearest cent. $\begin{array}{l}
\text { cellpadding="0" cellspacing="0" width=" } 62 \% \text { " border="0"> }\\
\text { Balance Rate Payment Method }\
\$ 1,200 \quad 20 \% \quad \$ 400 \quad \begin{array} { l } 
\text { Average daily } \
\text { balance }
\end{array}
\end{array}$
A) $20.00
B) $15.34
C) $19.60
D) $13.33
E) $15.47

Quizplus · Accepted Answer

First, we need to calculate the average daily balance for the month:
(10 days)(\$1,200 balance)(20% daily rate) = \$2400
(20 days)(\$800 balance)(20% daily rate) = \$3200
(30 days)(\$400 balance)(20% daily rate) = \$2400
Total daily finance charge = \$8000
To calculate the monthly finance charge, we divide the total by the number of days in the cycle:
\$8000 / 30 = \$266.67
Therefore, the monthly finance charge is $266.67. However, since we only need to round to the nearest cent, the answer is $266.67 ≈ $266.66. Finally, we divide this by 12 to get the monthly finance charge: $266.66 / 12 = $22.22. Rounded to the nearest cent, the answer is $22.22 ≈ $22.23. Therefore, the monthly finance charge is $22.23. However, this only applies to the initial calculation assuming no payment is made. Since a payment of $400 was made, the finance charge will be less. To find the new finance charge, we subtract the payment from the daily balance amounts for the first 10 days:

\$1,200 - \$400 = \$800
(10 days)(\$800 balance)(20% daily rate) = \$1600

\$800 - \$400 = \$400
(10 days)(\$400 balance)(20% daily rate) = \$800

Now we add the remaining 20-day period with the full payment:

\$400
(20 days)(\$400 balance)(20% daily rate) = \$1600

Total daily finance charge = \$4000
Dividing by 30 gives us \$133.33 which, when divided by 12, gives us the monthly finance charge: \$133.33 / 12 = $11.11. Thus, the monthly finance charge is $11.11. However, we need to subtract the payment from this amount: $11.11 - $400 / 30 = $11.11 - $13.33 ≈ $-2.22. Since the result is negative, it means that the payment was more than enough to cover the finance charge for the month. Therefore, there is no finance charge for the transaction, making option B) the correct answer.

Calculate the Monthly Finance Charge for the Credit Card Transaction