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Transcript of Buy Now, Pay Later Many people make purchases using credit cards. Why might you want to buy...
Buy Now, Pay Later
Many people make purchases using credit cards.
Why might you want to buy something using a credit card instead of cash?
Lesson Objective
Compute the finance charge based on the average-daily-balance method–new purchases included.
Content Vocabulary
average-daily-balancemethod average-daily-balance method
Computing the finance charge on a credit account based on the average balance at the end of each day of the billing period.
average-daily-balance method
Computing the finance charge on a credit account based on the average balance at the end of each day of the billing period.
Aiesha Miller has a charge account where the finance is computed using the average-daily-balance method that includes new purchases. She checks to be sure the average daily balance is correct.
Her account statement is shown in Figure 7.7 below.
Example 1Example 1
Figure 7.7Figure 7.7
Figure 7.7 (cont.)Figure 7.7 (cont.)
Find the sum of daily balances.
Example 1 Answer: Example 1 Answer: Step 1Step 1
Find the average daily balance.
Sum of Daily Balances ÷ Number of Days
$3,628.50 ÷ 31 = $117.048 or $117.05
Example 1 Answer: Example 1 Answer: Step 2Step 2
Aiesha Miller (from Example 1) checks the finance charge and the new balance. The finance charge is 2 percent of the average daily balance.
What is the new balance?
Example 2Example 2
Find the unpaid balance.
Previous Balance – (Payments + Credits)
$125.80 – $70.00 = $55.80
Example 2 Answer: Example 2 Answer: Step 1Step 1
Find the finance charge.
Average Daily Balance × Periodic Rate
$117.05 × 2% = $2.3418 or $2.34
Example 2 Answer: Example 2 Answer: Step 2Step 2
Find the new purchases.
$25.85
Example 2 Answer: Example 2 Answer: Step 3Step 3
Find the new balance.
Unpaid Balance + Finance Charge + New Purchases
$55.80 + $2.34 + $25.85 = $83.99
Example 2 Answer: Example 2 Answer: Step 4Step 4
Deepak Sankaran received his credit card statement for the billing period of 7/15 to 8/14.
His previous balance was $820.47. His payment of $600 was posted on 7/22. On 8/4 new purchases of $144.39 were posted.
No other transactions occurred during the billing period. The finance charge is 1.25 percent of the average daily balance.
Practice 1Practice 1
What is the average daily balance?
What is the finance charge?
What is the new balance (new purchases included)?
Practice 1 (cont.)Practice 1 (cont.)
Average daily balance: $407.19
Finance charge: $5.09
New balance: $369.95
Practice 1 AnswerPractice 1 Answer