The most common way of calculating finance charges is not the simplified one we used but...

 

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The most common way of calculating finance charges is not the simplified one we used but rather the average daily balance. With this method, we calculate the account balance at the end of each day of the month and take the average. That average is the amount subject to finance charges. To simplify things, we assume that the billing period is one week rather than one month. Assume that the weekly rate is 1%. You begin with a balance of $470. On day 1, you charge $85. On day 3, you make a payment of $190 and charge $90. On day 6, you charge $190. Assume that finance charges are calculated using the simplified method. Find the account balance at the end of the week. The most common way of calculating finance charges is not the simplified one we used but rather the average daily balance. With this method, we calculate the account balance at the end of each day of the month and take the average. That average is the amount subject to finance charges. To simplify things, we assume that the billing period is one week rather than one month. Assume that the weekly rate is 1%. You begin with a balance of $470. On day 1, you charge $85. On day 3, you make a payment of $190 and charge $90. On day 6, you charge $190. Assume that finance charges are calculated using the simplified method. Find the account balance at the end of the week.

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Using the simplified method finance charges are calculated on the outstanding balance ... View the full answer