Reference no: EM132828592
Computation of finance charges - Periodic rate and averagedaily balance periodic rate
If you divide the APR (annual percentage rate) for a credit card account by the number of billing cycles per year (usually 12), the result is known as the . Consider the following example:
Part A: Calculate the Periodic Rate
- Suppose that your credit card has an APR of 21%. Assuming that there are 12 billing cycles per year, the periodic rate would be __% per month (Note: Rounded to two decimal places).
- Expressed as a decimal, the periodic rate is __ (Note: Rounded to four decimal places).
(Note: The actual periodic rate would be slightly higher because of compounding.)
To compute the monthly finance charge for a credit card account, you must first calculate the average daily balance, which is the sum of the outstanding balances owed each day divided by the number of days in the billing period.
The average daily balance has been assumed in the following example. Use the assumed average daily balance together with the periodic rate from part A to calculate the finance charge for the month of March.
Part B: Calculate the Finance Charge
Suppose that for the month of March your average daily balance has been computed to be $1,400. Now use the periodic rate from part A to calculate the finance charge: (Note: Round the average daily balance to two decimal places, the periodic rate to four decimal places, and the finance charge to two decimal places.)
- Average Daily Balance $__ x Periodic rate (Decimal) __ = Finance charge $__
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Computation of finance charges-periodic rate
: If you divide the APR (annual percentage rate) for a credit card account by the number of billing cycles per year (usually 12), the result is known as the . Con
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