Calculate the monthly finance charge for the credit card transaction. Assume that it takes 10 days for a payment to be received and recorded, and that the month is 30 days long. (Round your answers to the nearest cent.)

Complete Question:

Calculate the monthly finance charge for the following credit card transaction. Assume that it takes 10 days for a payment to be received and recorded and that the month is 30 days long. Round your answer to the nearest cent.

3,000 balance, 21% rate, 150 payment, average daily method

Solution:

The particular month in question is 30 days long.

Your balance at the start of the month is 3,000.

Annual interest rate = 21%.

Payment = 150.00.

When the payment is made in the month, it reflects on the tax amount you pay on both the average day balance.

YOU SEND THE PAYMENT IN ON THE FIRST DAY OF THE MONTH.

YOUR ACCOUNT IS CREDITED ON THE 11TH DAY OF THE MONTH.

Average daily balance is 3000 from day 1 until day 10 (10 days)

Average daily balance is 2850 from day 11 until day 30 (20 days)

Average daily balance for the month = 10 * 3000 + 20 * 2850

                                                             = 87000 / 30

                                                             = 2900

Interest charge for the month = 0.21 * 2900 * 30 / 365

Interest charge for the month = 50.05 rounded to the nearest penny

YOU SEND THE PAYMENT IN ON THE TWENTIETH DAY OF THE MONTH.

YOUR ACCOUNT IS CREDITED ON THE 30TH DAY OF THE MONTH.

Average daily balance is 3000 from day 1 until day 29 (29 days)

Average daily balance is 2850 from day 30 until day 30 (1 day)

Average daily balance for the month = 3000 * 29 + 1 * 2850

                                                             = 89850 / 30

                                                             = 2995

Interest charge for the month = 0.21 * 2995 * 30 / 365

Interest charge for the month = 51.69 rounded to the nearest penny

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