Finance Charge: Average-Daily-Balance Method Ex. 1

Front

What is a finance charge?

Back

A finance charge is the cost of borrowing money, typically expressed as a percentage of the amount borrowed, which includes interest and any additional fees.

Tags

CCSS.7.RP.A.3

Front

What is the Average-Daily-Balance Method?

Back

The Average-Daily-Balance Method calculates finance charges based on the average balance in an account over a specific period, taking into account daily transactions.

Tags

CCSS.7.RP.A.3

Front

How do you calculate the average daily balance?

Back

To calculate the average daily balance, sum the daily balances for each day in the billing cycle and then divide by the number of days in that cycle.

Tags

CCSS.7.NS.A.3

Front

What is the formula for calculating finance charges using the average daily balance?

Back

Finance Charge = Average Daily Balance x Daily Periodic Rate x Number of Days in Billing Cycle.

Tags

CCSS.7.RP.A.3

Front

What is a daily periodic rate?

Back

The daily periodic rate is the annual interest rate divided by the number of days in a year, used to calculate daily finance charges.

Tags

CCSS.7.RP.A.3

Front

If the end-of-day balance is $740 on 9/18, what is the average daily balance for that day?

Back

The average daily balance for that day is $740, as there are no other transactions affecting the balance.

Tags

CCSS.7.NS.A.3

Front

What is the total balance for the period from 9/6 to 9/17 if the end-of-day balance is $600?

Back

The total balance for that period is $7,200, calculated as $600 multiplied by 12 days.

Tags

CCSS.7.EE.B.3

Front

How do new purchases affect the average daily balance?

Back

New purchases increase the daily balance for the days they are outstanding, which can raise the average daily balance and subsequently the finance charge.

Tags

CCSS.7.NS.A.1D

Front

What is the significance of the number of days in calculating average daily balance?

Back

The number of days is crucial as it determines the weight of each balance in the average calculation, affecting the overall finance charge.

Tags

CCSS.7.RP.A.2C

Front

If the end-of-day balance is $500 for 7 days, what is the total balance for that period?

Back

The total balance for that period is $3,500, calculated as $500 multiplied by 7 days.