MTH 120 - Calculating Credit Card Interest using Average Daily Balance Method

MTH 120 - Calculating Credit Card Interest using Average Daily Balance Method

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Unformatted text preview: Example : Calculating Monthly Interest and New Balance for a Credit Card using the Average Daily Balance Method Calculate the monthly interest and the new balance at the end of the month for a credit card with an APR of 18% that uses the average daily balance method having a balance of $1,000.00 on March 1 if you made a $100 00 paymen tha wa received and recorded e posted on March 10 you made a $100.00 payment that was received and recorded, i.e., posted, on March 10. First, lets assume the credit card company posts payments only after first accruing daily interest. Now, lets calculate the interest charged from March 1 to March 10, i.e., the date your payment posted using I 10 = P 10 r 10 t 10 , then lets calculate the interest charged from March 11 to March 31 using I 21 = P 21 r 21 t 21 . Since the balance from March 1 to March 10 is $1,000.00 P 10 = 1,000 Since the credit card company uses the average daily balance method r 10 = APR / 365 = 0.18 / 365 = 0.0004931506 Lets use 5 significant digits r 10 = 0.00049315 Since we assumed the credit card company posts payments after accruing daily interest; therefore...
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This note was uploaded on 02/29/2012 for the course MATH 120 taught by Professor Adjunct during the Fall '11 term at Northern Virginia Community College.

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MTH 120 - Calculating Credit Card Interest using Average Daily Balance Method

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