AnswersFowU - Financial Math - BFinance ChargesQuestion 1
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Finance Charges

Question 1 • FowU - Financial Math - B

Gregory has a credit card with a 30-day billing cycle and an APR of 11.95%. The following table shows Gregory’s credit card transactions for the month of April.DateAmount ($)Transaction4/1622.82Beginning balance4/445.45Payment4/1078.91Purchase4/2516.36PurchaseBetween the adjusted balance method and the daily balance method, which method of computing Gregory’s April finance charge will result in a greater finance charge, and how much greater will it be?

Answer
A
The daily balance method will have a finance charge $0.09 greater than the adjusted balance method.
B
The daily balance method will have a finance charge $0.54 greater than the adjusted balance method.
C
The adjusted balance method will have a finance charge $1.40 greater than the daily balance method.
D
The adjusted balance method will have a finance charge $0.86 greater than the daily balance method.

Explanation

The adjusted balance is the $622.82 beginning balance minus the $45.45 payment, or $577.37. Its finance charge is $577.37 × (0.1195 ÷ 12), which rounds to $5.75. For the daily balance method, the balances over the 30 days total $19,212.72; multiplying by the daily rate, 0.1195 ÷ 365, gives about $6.29. The daily balance method is therefore about $0.54 greater, matching choice b.

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