question archive Choose one of the scenarios and answer all four questions
Choose one of the scenarios and answer all four questions
Subject:AccountingPrice:3.86 Bought8
Choose one of the scenarios and answer all four questions. In all of the credit card scenarios, assume a month with 30 days and 14% APR. For each scenario, do the calculations using the average daily balance method.
In all four cases, assume the initial balance is $300.
- If you make a $300 payment on the first of the month, how much interest will you owe at the end of the month?
- If you make a $300 payment on the 30th of the month, how much interest will you owe at the end of the month?
- If you make a $10 payment every day for 30 days. How much interest will you owe at the end of the month?
- Based on your results, suggest a payment strategy that will minimize your monthly interest owed.
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1) Interest owe at the end of the month = 3.50
2) Interest owe at the end of the month = 0.12
3) Interest owe at the end of the month = 1.81
4) Best strategy is make a $300 payment on the 30th of the month.
Step-by-step explanation
Case 1) Total balance outstanding on all days/ no. of billing days
= (300 x 30)/30
= 300
Interest owe at the end of the month = 300 x 14% x 30/360
= 3.50
Case 2) (300 x 1)/30 = 10
Interest owe at the end of the month = 10 x 14% x 30/360
= 0.12
Case 3) Balance outstanding all days/no. of billing days
(10+20+30+40+50+60+70+80+90+100+110+120+130+140+150+160+170+180+190+200+210+220+230+240+250+260+270+280+290+300)/30
= 4,650/30
= 155
Interest owe at the end of the month = 155 x 14% x 30/360
= 1.81
