Question

Gregory has a credit card with a 30-day billing cycle and an APR of 11.95%. The following table shows Gregory’s credit card transactions for the month of April.
Date
Amount ($)
Transaction
4/1
622.82
Beginning balance
4/4
45.45
Payment
4/10
78.91
Purchase
4/25
16.36
Purchase

Between the adjusted balance method and the daily balance method, which method of computing Gregory’s April finance charge will result in a greater finance charge, and how much greater will it be?
a.
The daily balance method will have a finance charge $0.09 greater than the adjusted balance method.
b.
The daily balance method will have a finance charge $0.54 greater than the adjusted balance method.
c.
The adjusted balance method will have a finance charge $1.40 greater than the daily balance method.
d.
The adjusted balance method will have a finance charge $0.86 greater than the daily balance method.

Answer 1

The answer it's "b".

Answer 2

Adjusted balance = 622.82 - 45.45 + 78.91 + 16.36 = 672.64
Adjused balance method finance charges = 672.64 x 0.1195/12 = 6.70

Average daily balance = ((622.82 x 3) + (577.37 x 6) + (656.28 x 15) + 672.64 x 6)) / 30 = (1868.46 + 3464.22 + 9844.20 + 4035.84) / 30 = 640.42
Daily balance method finance charges = 640.42 x 0.1195/12 = 6.38