3.3Installment Buying and Credit Cards

Simple Finance ChargesThe finance charge is the amount of the

purchase in excess of the selling price. Barry wants to purchase a tv for $1540.

Since he does not have the cash up front, he enter into an agreement to pay $55 a month for 36 months. Find the total cost and the finance charge for this purchase.

55*36=1980. therefore, the finance charge would be then 1980-1540=$440

Monthly PaymentsA light saber is for sale at a price of $1250,

but it may be purchased on an installment plan by paying $300down, and then paying the balance plus 16% simple interest in 12 monthly payments. What would be the amount of each payment?

Using simple interest formula, I = 950*.16*1=$152. So 950 + 152 = $1102 is the balance. Since there will be 12 payments, each one should be 1102/12=$91.83

The total cost of the light saber would be the price of $1250 plus the finance charge of 152, or $1402.

Ron Weasly buys a Nimbus 2000 for g450 (g-galleons, currency in the wizard world) and pays for it over two years with 11.5% simple interest. What is the monthly payment.

I=450*.115*2=103.50Total amount=103.5+450=553.5553.5/24=23.06So the monthly payment is g 23.06Except for the last month, the last month

payment is g23.12

Credit card and Finance ChargesThe finance charge on a credit card is the

simple interest on the average daily balance using a daily interest rate.

The billing cycle is the number of days between credit card statements, and usually corresponds to the number of days in a specific month, which will be 28, 30 or 31 days.

How many days are in the billing cycle that runs from the June 15 through July 14?

30 days.If a credit card has a balance of $20 for 21

days and then a balance of $40 for 9 days, what is the average daily balance for that 30-day period?

20*21=420 and 40*9=360420+360=780ADB: 780/30=$26ADB- the average daily balance is just that-

the average of the daily balances for all the days in the billing cycle.

Daily interest rate: the interest rate stated with a credit card is always an annual percentage rate (APR).

Since there are 365 days in a year, the daily interest rate is the APR/365.

APR/366

Monthly Finance ChargeMonthly Finance Charge = (ADB) *

(APR/365)*(# Of Days in Billing Cycle)

Lets say we have an average daily balance of $456 on a credit card with an APR of 12.9%, over a billing period of 31 days. What would be the finance charge be?

456*(.129/365)*31=$5.00 (to the nearest cent)

The balance on the Harry’s credit card on May 12, his billing date, was g378.50. For the period ending June 11, he made the following transactions.

May 12, Charge : toys, g129.79May 15, Payment: g50.00May 18, Charge: Clothing, g135.85May 29, Charge: Gasoline, g37.63A. Find the average daily balance for the billing

period.B. Find the finance charge that is due on June

12. Assume APR of 15.6%C. Find the balance that is due on June 12.

Dates # of days Balance Due #of Days*Balance

May 12 1 g378.50 g378.50

May13-14 2 g508.29 g1016.58

May 15-17 3 g458.29 g1374.87

May 18-28 11 g594.14 g6535.54

May 29-June 11 14 g631.77 g8844.78

Totals: 31 g18150.27

• The average daily balance us 18150.27/31 = g585.49 • The finance charge is 585.49*(.156/365)*31=g7.76• The balance due on June 12 is 631.77+7.76=g639.53

The balance on Smiths Credit card on November 8, their billing date, was $812.96. For the period ending December 7, they made the following transactions.

November 13, charge: toys, $231.10November 15, Payment: $500November 29, charge: Clothing, $87.19Assuming they have an APR of 5.9%, find the

balance that is due on December 8.

The average daily balance is $19451.01/30=$648.37

That makes the finance charge 648.37*(.059/365)*30=$3.14

Then, the balance forwarded is $631.25+$3.14=$634.39

Dates #of days Balance due #of days *balance

Nov 8-12 5 $812.96 $4064.80

Nov 13-14 2 $1044.06 $2088.12

Nov 15-28 14 $544.06 $7616.84

Nov29-dec7 9 $631.25 $5681.25

Totals 30 $19,451.01

HW 3.3 pg 1841-15