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On November 1, the balance of a credit card account is $2,835.63. There was a payment of $230.00 made on

November 12 as well as a new purchase for $121.36. On November 25, a second payment of $25.00 was made. The

annual interest on the account is 17.65%. Determine the finance charge for the account using both the average daily

balance and the adjusted balance methods. Which method would be more advantageous to the cardholder? Justify

your reasoning. Answer in complete sentences.

Respuesta :

jepessoa

Answer:

The adjusted balance is generally the most advantageous billing method for the cardholder since the financial charges are lower ($39.20 < $40.07). This happens because interest is only charged on the final monthly balance, and cardholders can decrease that balance during any day of the billing cycle.

Step-by-step explanation:

November 1: balance $2,835.63

November 12: $230 payment

November 12: $121.36 purchase

November 25: $25 payment

annual interest 17.65%

average daily  balance = {(11 x $2,835.63) + [13 x ($2,835.63 - $230 + $121.36)] +  [6 x ($2,835.63 - $230 + $121.36 - $25)]} 31 days = ($31,191.93 + $35,450.87 + $16,211.94) / 30 days = $82,854.74 / 30 days = $2,761.82

financial charge = ($2,761.82 x 30 x 17.65%) / 365 = $40.065 ≈ $40.07

adjusted balance = $2,835.63 - $230 + $121.36 - $25 = $2,701.99

financial charge = $2,701.99 x 17.65% x 30/365 = $39.197 ≈ $39.20