Finance Charge: Average-Daily-Balance Method Ex. 2

Front

What is the Average Daily Balance (ADB)?

Back

The Average Daily Balance is a method used to calculate the balance of an account over a specific period, taking into account the daily balance and the number of days each balance was held.

Tags

CCSS.6.NS.B.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.RP.A.3

Front

What is a finance charge?

Back

A finance charge is the cost of borrowing money, typically expressed as a percentage of the outstanding balance, which can include interest and fees.

Tags

CCSS.5.NBT.A.2

Front

How do you calculate the finance charge using the Average Daily Balance method?

Back

To calculate the finance charge, multiply the Average Daily Balance by the periodic interest rate.

Tags

CCSS.7.RP.A.3

Front

What is the formula for calculating the finance charge?

Back

Finance Charge = Average Daily Balance x Periodic Rate.

Tags

CCSS.7.RP.A.3

Front

If the Average Daily Balance is $491.67 and the periodic rate is 1.5%, what is the finance charge?

Back

Finance Charge = $491.67 x 0.015 = $7.38.

Tags

CCSS.7.RP.A.3

Front

What is the new balance after applying the finance charge?

Back

New Balance = Previous Balance + Finance Charge.

Tags

CCSS.7.RP.A.3

Front

If the previous balance is $135.53 and the finance charge is $7.38, what is the new balance?

Back

New Balance = $135.53 + $7.38 = $142.91.

Tags

CCSS.7.NS.A.3

Front

What is an unpaid balance?

Back

An unpaid balance is the amount of money that remains owed after payments have been made.

Tags

CCSS.6.NS.C.7C

Front

How do you calculate the unpaid balance?

Back

Unpaid Balance = Previous Balance - Payments & Credits.

Tags

CCSS.6.NS.C.7C