Use the average daily balance method to compute the finance charge on the credit card account for the month of August (31 days). The starting balance from the previous month is $250. The transactions on the account for the month are given in the table to the right. Assume an annual Date Transaction August 5 Made payment of $90 August 15 Charged $140 for hiking boots August 16 Charged $24 for gasoline August 23 Charged $27 for restaurant meal interest rate of 23% on the account and that the billing date is August 1st. The finance charge for the month of August is $ (Round to the nearest cent as needed.)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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**How to Calculate the Finance Charge Using the Average Daily Balance Method**

To compute the finance charge on a credit card account for the month of August (31 days), we use the average daily balance method. Here’s a step-by-step guide:

1. **Starting Balance:** $250 from the previous month.

2. **Transaction Details:**
   - **August 5:** Made a payment of $90.
   - **August 15:** Charged $140 for hiking boots.
   - **August 16:** Charged $24 for gasoline.
   - **August 23:** Charged $27 for a restaurant meal.

3. **Interest Rate:** The account carries an annual interest rate of 23%, with the billing date on August 1st.

4. **Objective:** Calculate the finance charge for August. (Round to the nearest cent.)

**Steps to Calculate the Average Daily Balance:**

1. **Determine daily balance for each transaction period.**
2. **Calculate the average daily balance for the entire month.**
3. **Apply the monthly interest rate (yearly rate divided by 12) to the average daily balance.**

This method provides a fair assessment of the finance charge based on your spending and payment habits throughout the month.
Transcribed Image Text:**How to Calculate the Finance Charge Using the Average Daily Balance Method** To compute the finance charge on a credit card account for the month of August (31 days), we use the average daily balance method. Here’s a step-by-step guide: 1. **Starting Balance:** $250 from the previous month. 2. **Transaction Details:** - **August 5:** Made a payment of $90. - **August 15:** Charged $140 for hiking boots. - **August 16:** Charged $24 for gasoline. - **August 23:** Charged $27 for a restaurant meal. 3. **Interest Rate:** The account carries an annual interest rate of 23%, with the billing date on August 1st. 4. **Objective:** Calculate the finance charge for August. (Round to the nearest cent.) **Steps to Calculate the Average Daily Balance:** 1. **Determine daily balance for each transaction period.** 2. **Calculate the average daily balance for the entire month.** 3. **Apply the monthly interest rate (yearly rate divided by 12) to the average daily balance.** This method provides a fair assessment of the finance charge based on your spending and payment habits throughout the month.
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