Calvin's Credit Card Computes Finance Charges Using The Daily Balance Method. His Card Has A Billing Cycle Of 30 Days And An APR Of $14.75 \%$. The Following Table Details Calvin's Transactions In The Month Of
**Understanding Calvin's Credit Card Finance Charges: A Comprehensive Guide** ===========================================================
What is the Daily Balance Method?
The daily balance method is a way that credit card companies calculate finance charges. It takes into account the daily balance of the account, rather than the ending balance. This means that the finance charge is calculated on a daily basis, rather than just on the final day of the billing cycle.
How Does the Daily Balance Method Work?
To calculate the finance charge using the daily balance method, you need to know the following information:
- The daily balance of the account
- The APR (annual percentage rate) of the credit card
- The number of days in the billing cycle
The formula to calculate the finance charge is:
Finance Charge = (Daily Balance x APR x Number of Days) / 365
Example: Calculating Finance Charges Using the Daily Balance Method
Let's use Calvin's credit card as an example. His credit card has a billing cycle of 30 days and an APR of 14.75%. The following table details Calvin's transactions in the month of January:
| Date | Transaction | Balance |
|---|---|---|
| January 1 | $1,000 | $1,000 |
| January 5 | $500 | $1,500 |
| January 10 | -$200 | $1,300 |
| January 15 | $300 | $1,600 |
| January 20 | -$100 | $1,500 |
| January 25 | $200 | $1,700 |
| January 30 | -$300 | $1,400 |
To calculate the finance charge, we need to calculate the daily balance for each day of the billing cycle.
| Date | Daily Balance |
|---|---|
| January 1 | $1,000 |
| January 2 | $1,000 |
| January 3 | $1,000 |
| January 4 | $1,000 |
| January 5 | $1,500 |
| January 6 | $1,500 |
| January 7 | $1,500 |
| January 8 | $1,500 |
| January 9 | $1,500 |
| January 10 | $1,300 |
| January 11 | $1,300 |
| January 12 | $1,300 |
| January 13 | $1,300 |
| January 14 | $1,300 |
| January 15 | $1,600 |
| January 16 | $1,600 |
| January 17 | $1,600 |
| January 18 | $1,600 |
| January 19 | $1,600 |
| January 20 | $1,500 |
| January 21 | $1,500 |
| January 22 | $1,500 |
| January 23 | $1,500 |
| January 24 | $1,500 |
| January 25 | $1,700 |
| January 26 | $1,700 |
| January 27 | $1,700 |
| January 28 | $1,700 |
| January 29 | $1,700 |
| January 30 | $1,400 |
Now that we have the daily balance for each day of the billing cycle, we can calculate the finance charge.
Finance Charge = (Daily Balance x APR x Number of Days) / 365
Finance Charge = ($1,000 x 14.75% x 30) / 365 Finance Charge = $1,400 / 365 Finance Charge = $3.83
Q&A: Understanding Calvin's Credit Card Finance Charges
Q: What is the daily balance method?
A: The daily balance method is a way that credit card companies calculate finance charges. It takes into account the daily balance of the account, rather than the ending balance.
Q: How does the daily balance method work?
A: To calculate the finance charge using the daily balance method, you need to know the following information: the daily balance of the account, the APR (annual percentage rate) of the credit card, and the number of days in the billing cycle. The formula to calculate the finance charge is: Finance Charge = (Daily Balance x APR x Number of Days) / 365
Q: What is the APR on Calvin's credit card?
A: The APR on Calvin's credit card is 14.75%.
Q: How many days is the billing cycle on Calvin's credit card?
A: The billing cycle on Calvin's credit card is 30 days.
Q: What is the daily balance on Calvin's credit card for each day of the billing cycle?
A: The daily balance on Calvin's credit card for each day of the billing cycle is as follows:
| Date | Daily Balance |
|---|---|
| January 1 | $1,000 |
| January 2 | $1,000 |
| January 3 | $1,000 |
| January 4 | $1,000 |
| January 5 | $1,500 |
| January 6 | $1,500 |
| January 7 | $1,500 |
| January 8 | $1,500 |
| January 9 | $1,500 |
| January 10 | $1,300 |
| January 11 | $1,300 |
| January 12 | $1,300 |
| January 13 | $1,300 |
| January 14 | $1,300 |
| January 15 | $1,600 |
| January 16 | $1,600 |
| January 17 | $1,600 |
| January 18 | $1,600 |
| January 19 | $1,600 |
| January 20 | $1,500 |
| January 21 | $1,500 |
| January 22 | $1,500 |
| January 23 | $1,500 |
| January 24 | $1,500 |
| January 25 | $1,700 |
| January 26 | $1,700 |
| January 27 | $1,700 |
| January 28 | $1,700 |
| January 29 | $1,700 |
| January 30 | $1,400 |
Q: What is the finance charge on Calvin's credit card?
A: The finance charge on Calvin's credit card is $3.83.
Q: How is the finance charge calculated?
A: The finance charge is calculated using the formula: Finance Charge = (Daily Balance x APR x Number of Days) / 365
Q: What is the APR on Calvin's credit card?
A: The APR on Calvin's credit card is 14.75%.
Q: How many days is the billing cycle on Calvin's credit card?
A: The billing cycle on Calvin's credit card is 30 days.
Q: What is the daily balance on Calvin's credit card for each day of the billing cycle?
A: The daily balance on Calvin's credit card for each day of the billing cycle is as follows:
| Date | Daily Balance |
|---|---|
| January 1 | $1,000 |
| January 2 | $1,000 |
| January 3 | $1,000 |
| January 4 | $1,000 |
| January 5 | $1,500 |
| January 6 | $1,500 |
| January 7 | $1,500 |
| January 8 | $1,500 |
| January 9 | $1,500 |
| January 10 | $1,300 |
| January 11 | $1,300 |
| January 12 | $1,300 |
| January 13 | $1,300 |
| January 14 | $1,300 |
| January 15 | $1,600 |
| January 16 | $1,600 |
| January 17 | $1,600 |
| January 18 | $1,600 |
| January 19 | $1,600 |
| January 20 | $1,500 |
| January 21 | $1,500 |
| January 22 | $1,500 |
| January 23 | $1,500 |
| January 24 | $1,500 |
| January 25 | $1,700 |
| January 26 | $1,700 |
| January 27 | $1,700 |
| January 28 | $1,700 |
| January 29 | $1,700 |
| January 30 | $1,400 |
Q: What is the finance charge on Calvin's credit card?
A: The finance charge on Calvin's credit card is $3.83.
Q: How is the finance charge calculated?
A: The finance charge is calculated using the formula: Finance Charge = (Daily Balance x APR x Number of Days) / 365
Q: What is the APR on Calvin's credit card?
A: The APR on Calvin's credit card is 14.75%.
Q: How many days is the billing cycle on Calvin's credit card?
A: The billing cycle on Calvin's credit card is 30 days.
Q: What is the daily balance on Calvin's credit card for each day of the billing cycle?
A: The daily balance on Calvin's credit card for each day of the billing cycle is as follows:
| Date | Daily Balance |
|---|---|
| January 1 | $1,000 |
| January 2 | $1,000 |
| January 3 | $1,000 |
| January 4 | $1,000 |
| January 5 | $1,500 |
| January 6 | $1,500 |
| January 7 | $1,500 |
| January 8 | $1,500 |
| January |