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3.3

3.3. Installment Buying and Credit Cards. Simple F inance Charges. The finance charge is the amount of the purchase in excess of the selling price.

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3.3

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  1. 3.3 Installment Buying and Credit Cards

  2. Simple Finance Charges • The 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

  3. Monthly Payments • A 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?

  4. 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.

  5. 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=103.50 • Total amount=103.5+450=553.5 • 553.5/24=23.06 • So the monthly payment is g 23.06 • Except for the last month, the last month payment is g23.12

  6. Credit card and Finance Charges • The 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.

  7. 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=360 • 420+360=780 • ADB: 780/30=$26 • ADB- the average daily balance is just that- the average of the daily balances for all the days in the billing cycle.

  8. 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

  9. Monthly Finance Charge • Monthly Finance Charge = (ADB) * (APR/365)*(# Of Days in Billing Cycle)

  10. 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)

  11. 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, g129.79 • May 15, Payment: g50.00 • May 18, Charge: Clothing, g135.85 • May 29, Charge: Gasoline, g37.63 • Find the average daily balance for the billing period. • Find the finance charge that is due on June 12. Assume APR of 15.6% • Find the balance that is due on June 12.

  12. 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

  13. 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, $231.10 • November 15, Payment: $500 • November 29, charge: Clothing, $87.19 • Assuming they have an APR of 5.9%, find the balance that is due on December 8.

  14. 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

  15. HW 3.3 pg 184 • 1-15

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