Question

1. Assume you owe $5,000 on a credit card on June 1st. Assume the company uses the average daily balance to compute interest, at the rate of 20 %. Assume that these transactions occur during the month of June: On June 5th, you charge another $200 on the card. On June 13, you pay $500. On June 17th, you charge another $300. On June 25th, you charge another $500. At the end of the month, how much money do you owe? How much is the interest amount? How much is your minimum payment, assuming it is 1% of your outstanding balance? (5 points)

Answer 1

Calculation of average daily balance

Date	Amount Due	No of Days (weight)	Weighted amount due
June 1	5000	4	20000
June 5	5200	8	41600
June 13	4700	4	18800
June 17	5000	8	40000
June 25	5500	6	33000
	Total	30	153400

Average Daily balance = Weighted amount due / Total number of days

= 153400 / 30 = 5113.33

Calculation of Interest Payable

Interest = Principal * interest rate * time

Interest Amount = 5113.33 * 20% * 1/12 = 85.22

Calculation of money Owed and Outstanding balance

Money owed at the end of the month = 5500

Outstanding balance = Money owed + Interest payable

= 5500 + 85.22 = 5585.22

Calculation of Minimum Payment

Minimum Payment = outstanding balance * 1%

= 5585.22 * 1% = 55.85

Summary

At the end of the money owed (excluding interest) = 5500

Interest payable = 85.22

At the end of the month total outstanding amount = 5585.22

Minimum Payment = 55.85