Question

Patrick has a credit card with an APR of 15.40% and a billing cycle of 30 days. The following table shows Patrick’s credit card transactions in the month of August.

Date
Amount ($)
Transaction
8/1
1,466.22
Beginning balance
8/6
28.48
Purchase
8/9
150.00
Payment
8/17
115.75
Payment
8/20
40.00
Purchase
8/22
31.76
Purchase

How much greater will Patrick’s August finance charge be if his credit card company computes finance charges using the previous balance method than if it computes finance charges using the adjusted balance method?
a.
$2.44
b.
$3.41
c.
$2.13
d.
$4.69

Answer 1

Answer:

B. $3.41

Step-by-step explanation:

Answer 2

The amount that is greater that Patrick’s August finance charge is: b. $3.41.

What is finance charges?

Finance charges can be defined as the way in which a lender is compensated for lending out to a borrower.

Total amount using previous balance method

Total amount=1,466.22+28.48+40+31.76

Total amount=1,566.46

Interest=1566.46×15.40×30/360×1/100

Interest=20.10

Total amount using adjusted balance method

Total amount=1,566.46-150-115.75

Total amount=1,300.71

Interest 1,300.71×15.40×30/360×1/100

Interest=16.69

Difference=20.10-16.69

Difference=$3.41

Inconclusion the amount that is greater that Patrick’s August finance charge is: $3.41.

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