You have a credit card that charges an interest rate of 20.35% compounded monthly. The table below shows your activity for the month of October.
Date Activity Amount Balance
October 1 Beginning Balance 593.01
October 10 Purchase 46.95 639.96
October 15 Payment −250.00 389.96
October 17 Purchase 89.35 479.31
October 22 Purchase 13.54 492.85
October 28 Purchase 33.89 526.74
October 31 Ending Balance 526.74
What is the average daily balance for this account?
$
What is the finance charge for the month of October?
$
Could someone help me out please
multiply each amount by the number of days it existed
add up all those products
divide by the total number of days of existence
Just like any weighted average
For example, the avg daily balance for just the first three amounts is
(593.01*31 + 639.96*21 + 389.96*16)/(31+21+16) = 559.73
Wait could you explain where you got 21?
To calculate the average daily balance and finance charge for the month of October, you'll need to follow these steps:
Step 1: Calculate the daily balance for each day
- Start by calculating the daily balance for each day. For example, on October 1, the daily balance is $593.01, and on October 10, it becomes $639.96 after adding the purchase amount.
- To calculate the daily balance for each day, you need to consider the transactions that occurred on that day. For example, on October 10, you add the purchase amount of $46.95 to the previous day's balance of $593.01.
Step 2: Calculate the sum of all daily balances
- Add up all the daily balances for the month of October.
Step 3: Divide the sum of daily balances by the number of days in October
- Divide the sum of daily balances by 31 (the number of days in October) to get the average daily balance.
Step 4: Calculate the finance charge using the formula
- To calculate the finance charge, you can use the formula: finance charge = average daily balance * monthly interest rate
- The monthly interest rate can be calculated by dividing the annual interest rate by 12 (since it's compounded monthly). In this case, the monthly interest rate would be 20.35% / 12 = 1.69%.
Step 5: Calculate the finance charge for the month of October
- Multiply the average daily balance by the monthly interest rate calculated in Step 4 to get the finance charge for the month of October.
Let's calculate the average daily balance and finance charge for you.
Step 1:
October 1: $593.01
October 10: $639.96
October 15: $389.96
October 17: $479.31
October 22: $492.85
October 28: $526.74
October 31: $526.74
Step 2:
Sum of all daily balances: $3,148.57
Step 3:
Average daily balance = $3,148.57 / 31 = $101.55 (approx.)
Step 4:
Monthly interest rate = 1.69% / 100 = 0.0169
Step 5:
Finance charge = $101.55 * 0.0169 = $1.71 (approx.)
So, the average daily balance for this account in October is approximately $101.55, and the finance charge for the month is approximately $1.71.