Question

Calculate the average daily balance, finance charge, and new balance using the average daily balance method.

Answer 1

Solution :

For average daily balance:

Form date 9/1 to date 9/5 :

Balance x number of the days = $ 387.52 x 5 days = $ 1937.6

As on date 9/6 :

($ 387.52 - $ 50.00) x 1 day = $ 337.52

From date 9/7 to date 9/18 :

Balance = $ 337.50

Number of days = 12 days

Therefore, product = 12 days x $ 337.52

                               = $ 4050.24

As on 9/19 :

($ 337.52  + $ 62.66) x 1 day = $ 400.18

From date 9/20 to date 9/30

Balance :$ 400.18

Number of days = 11 days

Therefore, product = 11 days x $ 400.18

                               = $ 4401.98

Average daily balance =  $ 1937.6 +  $ 337.50 + $ 4050.24 + $ 400.18 + $ 4401.98

$=\frac{11127.5}{30}$

= $ 370.91

Finance charge = $ 370.91 x 1.75 %

                          = $ 6.49

New balance = $ 370.91 + $ 6.49

                      = $ 377.4