Calculating Finance Charges and Balances

Miss Hearne explains the average daily balance method, commonly used by credit cards to calculate finance charges. She uses an example involving Sandra Lazaro, who has an unpaid balance of $780 and makes a $400 payment three days before the end of a 31-day billing period. The video details how to calculate the average daily balance by multiplying the number of days by the balance and dividing by the total days. The finance charge is then calculated using a 3.2% monthly interest rate, resulting in a charge of approximately $23.72.

What is the average daily balance method primarily used for?

• Calculating monthly savings

• Determining credit card finance charges

• Estimating annual income

• Predicting stock market trends

How many days are typically in a billing period?

• 32 or 33 days

• 34 or 35 days

• 30 or 31 days

• 28 or 29 days

What does an unpaid balance refer to?

• The amount paid in advance

• The amount not paid off from the previous month

• The total credit limit

• The interest charged for the month

How is the average daily balance calculated?

• By adding all daily balances and dividing by the number of days

• By dividing the total balance by the number of transactions

• By multiplying the highest balance by the number of days

• By subtracting the lowest balance from the highest balance

For how many days did Sandra have a balance of $780?

• 3 days

• 28 days

• 30 days

• 31 days

What was Sandra's balance after making a $400 payment?

• $400

• $780

• $380

• $1,180

How do you calculate the total of all daily balances?

• By dividing the total balance by the number of days

• By adding the balances for each day

• By multiplying the number of days by the balance

• By subtracting the payments from the total balance

What is the average daily balance Sandra had in her account?

• $780

• $400

• $741.29

• $380

How is the monthly interest rate converted to decimal form?

• By multiplying by 100

• By moving the decimal one place to the right

• By dividing by 10

• By moving the decimal two places to the left

What is the monthly interest rate used in the calculation?

• 5.5%

• 4.0%

• 3.2%

• 2.5%