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23 March, 17:52

You have been pricing an MP3 player in several stores. Three stores have the identical price of $300. Each store charges 24 percent APR, has a 30-day grace period, and sends out bills on the first of the month. On further investigation, you find that store A calculates the finance charge by using the average daily balance method, store B uses the adjusted balance method, and store C uses the previous balance method. Assume you purchased the MP3 player on May 5 and made a $100 payment on June 15.

What will the finance charge be if you made your purchase from:

a. store A?

b. store B?

c. store C?

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Answers (1)
  1. 23 March, 18:04
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    a. $5

    b. $4

    c. $6

    Explanation:

    a. store A?

    Beginning balance = $300

    Ending balance = $300 - $100 = $200

    Average balance = ($300 + $200) : 2 = $250

    Monthly APR = 24% : 12 = 2%

    June finance charge = Average balance * Monthly APR = $250 * 2% = $5

    b. store B

    June finance charge = (Beginning balance - Payments) * Monthly APR = ($300 - $100) * 2% = $4

    c. store C?

    June finance charge = Beginning balance * Monthly APR = $300 * 2% = $6
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