The credit card with the transactions described uses the average daily balance method to calculate interest. The monthly interest rate is [tex]$1.5 \%$[/tex] of the average daily balance. Calculate parts a-d using the statement.
| Transaction Description | Transaction Amount |
|---|---|
| Previous balance, [tex]$6330.00[/tex] | |
| March 1 Billing date | |
| March 5 Payment | [tex]$250.00[/tex] credit |
| March 7 Charge: Restaurant | [tex]$50.00[/tex] |
| March 12 Charge: Groceries | [tex]$80.00[/tex] |
| March 21 Charge: Car Repairs | [tex]$280.00[/tex] |
| March 31 End of billing period | |
| Payment Due Date: April 9 |
The average daily balance for the billing period is [tex]$6303.55[/tex] (Round to the nearest cent as needed.)
b. Find the interest to be paid on April 1, the next billing date. Round to the nearest cent.
The interest to be paid on April 1 is [tex]$ \square[/tex] (Use the answer from part a to find this answer. Round to the nearest cent as needed.)
Answer (2)
Calculate the interest by multiplying the average daily balance by the monthly interest rate: Interest = Average Daily Balance × Monthly Interest Rate .
Substitute the given values: Interest = $6303.55 × 0.015 = $94.55325 .
Round the result to the nearest cent: $94.55325 ≈ $94.55 .
The interest to be paid on April 1 is $94.55 .
Explanation
Understanding the Problem We are given that the credit card uses the average daily balance method to calculate interest. The monthly interest rate is 1.5% of the average daily balance. We are also given that the average daily balance for the billing period is $6303.55 . Our objective is to find the interest to be paid on April 1, the next billing date, rounded to the nearest cent.
Calculating the Interest To calculate the interest, we need to multiply the average daily balance by the monthly interest rate. The monthly interest rate is 1.5% , which can be written as 0.015 in decimal form. So, we need to calculate: Interest = Average Daily Balance × Monthly Interest Rate Interest = $6303.55 × 0.015
Performing the Calculation Now, we perform the multiplication: $6303.55 × 0.015 = $94.55325
Rounding to the Nearest Cent We need to round the result to the nearest cent, which means rounding to two decimal places. $94.55325 ≈ $94.55 Therefore, the interest to be paid on April 1 is $94.55 .
Examples
Understanding credit card interest calculations is crucial for managing personal finances. For instance, if you consistently maintain an average daily balance on your credit card, knowing how the interest is calculated helps you predict your monthly charges. This knowledge enables you to make informed decisions about your spending and repayment strategies, potentially saving you money and improving your financial health. For example, if you have a balance of $1000 and an interest rate of 2% , you can calculate the interest as $1000 × 0.02 = $20 .
The interest to be paid on April 1 is calculated as $94.55 by multiplying the average daily balance of $6303.55 by the monthly interest rate of 1.5%. This involves using the formula and rounding the result to the nearest cent.
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