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Math Help - Last one, effective yield? Not sure

  1. #1
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    Last one, effective yield? Not sure

    Your credit card had a beginning balance on June 1 of $4259.64. On June 11 (10 days later), a $180 payment was recorded, and on June 28 (17 days later), a $520.67 purchase was recorded. If the daily periodic rate is 0.030822%, calculate the finance charge for the month.
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  2. #2
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    Quote Originally Posted by tony351 View Post
    Your credit card had a beginning balance on June 1 of $4259.64. On June 11 (10 days later), a $180 payment was recorded, and on June 28 (17 days later), a $520.67 purchase was recorded. If the daily periodic rate is 0.030822%, calculate the finance charge for the month.
    I think, I'm not certain, that credit card companies ring up your balance immediately, so for payments made and purchases made, I'm assuming all interest charges are made immediately, and then the payment or purchase is considered after that. 30 days in June. We start with our balance of 4259.64. Roll that up with 10 days of interest:

    4259.64*(1.00030822)^10 = 4272.79

    Now subtract the payment out of the new balance:

    4272.79 - 180 = 4092.79

    Now roll up that balance 17 days later:

    4092.79 * (1.00030822)^17 = 4114.29

    I take this balance before the new purchase of 520.67 is made. Adding this new purchase on, we have 4634.96.

    2 more full days of interest until the end of the month get us:

    4634.96 * (1.00030822)^2 = 4637.81

    Now, finance charge if we assume even weighting of time with payment and purchase gives us 4637.81 - original balance of 4259.64 = 378.17.

    I researched this more, and we may need to add our payment back in of 180 and subtract our purchase of 520.67 to get 37.50 of true finance charge.

    What does your answer key say?
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  3. #3
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    Let's see, the answer given in the book is $38.93. Thank you for attempting it. I have been working on it now for 30 minutes.
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  4. #4
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    Quote Originally Posted by tony351 View Post
    Let's see, the answer given in the book is $38.93. Thank you for attempting it. I have been working on it now for 30 minutes.
    Ok, my 37.50 I got above is close, which leads me to believe it's the weighting on the payment and the purchase. Don't fret, we are very close. Let me run the numbers on Excel and see if I can match that.
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  5. #5
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    Quote Originally Posted by mathceleb View Post
    Ok, my 37.50 I got above is close, which leads me to believe it's the weighting on the payment and the purchase. Don't fret, we are very close. Let me run the numbers on Excel and see if I can match that.
    Ok, got it!!!!!!

    We need to roll the purchase above for 3 days, it must have been BEFORE the balance was adjusted. Finance charge is interest paid + any fee paid, we don't have fees, so here is how we get your number:

    Balance at day 10 = 4272.79 - 4259.64 = 13.15.
    After the payment is made, we roll that new balance up 17 days.

    Finance Charge for that is 4114.29 - 4092.79 = 21.50.

    Now, after our payment is made, we have 3 days of interest at the end of the month. 4639.24 - 4634.95 = 4.29


    Add those 3 up and we get 38.94.
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  6. #6
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    Chart

    Here you go in nicer format.
    Attached Files Attached Files
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  7. #7
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    Lol

    LOL wooohooo you did it I got a kick out of your smiley
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  8. #8
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    There has to be a formula that we could use to make this easier to get at. I just hope this type of question doesn't show up on the exam. LOL confusing if you ask me
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  9. #9
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    Quote Originally Posted by tony351 View Post
    There has to be a formula that we could use to make this easier to get at. I just hope this type of question doesn't show up on the exam. LOL confusing if you ask me
    True. Sometimes, at least from what I've seen, they ask for an average finance charge, which, in your problem, would be the payment and purchase taken out at the the 15th, and then you take an average of the interest charge for the month.

    The best thing I can suggest is to take the balance at each time period right before a payment is made or a purchase occurs, in order to isolate interest.
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