4.6 & 4.8 credit cards notes

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<ul><li> 1. CreditCards September23,2011 $525 $104.50 $7187.00 $2281.50 $195.97 1 </li> <li> 2. CreditCards September23,2011 CreditCard: preapprovedcreditusedtopurchasenowandpaylater CreditCardResponsibility: useitifyoucanpayitoff paymorethanminimumbalancetopayoffquickly 2 </li> <li> 3. CreditCards September23,2011 FinanceCharge FinanceChargeper$100=(Financecharge/amountfinanced)*100 Thefinancechargefora6month,$1200installmentloanis$72. Findtheannual%rateontheloan. 3 </li> <li> 4. CreditCards September23,2011 InterestRates:APR(annualpercentagerate) Creditcardinterestiscompounding(interestisaddedeachmonthbased onamountofprincipal). Howlongwouldittakeyoutopayoffthepurchasewithoutinterest? 4 </li> <li> 5. CreditCards September23,2011 APR=24F F=financecharge P(n+1) P=originalprincipal,n=#ofpaymentsperyear FindtheAPRforafinancechargeof$5.75per$100for9payments. 5 </li> <li> 6. CreditCards September23,2011 HWpg.163#921 6 </li> <li> 7. CreditCards September23,2011 $12,730.80 $586.56 $134.58 $37,091.94 $16,205.08 7 </li> <li> 8. CreditCards September23,2011 PreviousBalanceMethod chargesinterestonthebalanceintheaccountonthelast billingdateofthepreviousmonth.Anycreditsincurrentmonth arenotincluded. Finance charge = previous balance * periodic rate New balance = previous balance + (finance charge + new purchases + fees) (payments + credits) Laurascardcompanyusesthepreviousbalancemethod. Themonthlyperiodicrateis1.5%and18%APR.Herpreviousbalancewas$225.60. Thismonthshepurchasedshoesfor$128.99,gasfor21.89,dinnerfor$27.79. Shereturnedapairofshoesfor$35.99andmadeapaymentof$75.00. Findthefinancechargeforthemonthandthenewbalance. 8 </li> <li> 9. CreditCards September23,2011 AdjustedBalanceMethod subtractspaymentsandcreditsduringthismonthfromthe balanceattheendofthepreviousmonth.Purchasesandfees incurrentmontharenotincluded. Adjusted balance = previous balance (payments + credits) Finance charge = adjusted balance * periodic rate New balance = adjusted balance + finance charge + new purchases and fees Laurascardcompanyusestheadjustedbalancemethod. Themonthlyperiodicrateis1.5%and18%APR.Herpreviousbalancewas$225.60. Thismonthshepurchasedshoesfor$128.99,gasfor21.89,dinnerfor$27.79. Shereturnedapairofshoesfor$35.99andmadeapaymentof$75.00. Findthefinancechargeforthemonthandthenewbalance. 9 </li> <li> 10. CreditCards September23,2011 AverageDailyBalanceMethod(ADB) totalofthebalanceattheendofeachdayduringaperiod dividedbythenumberofdaysintheperiod. Daily Balance = Beginning balance (payments + credits) + (purchases + fees) ADB = sum of daily balances / # of days in billing period Finance Charge = ADB * monthly periodic rate New Balance = Beginning balance (payments + credits) + (finance charges + new purchases + fees) Laurascardcompanyusestheaveragedailybalancemethod. Themonthlyperiodicrateis1.5%and18%APR.Herpreviousbalancewas$225.60. Thismonthshepurchasedshoesfor$128.99onthe4th,gasfor21.89onthe9th,dinnerfor $27.79onthe12th. Shereturnedapairofshoesfor$35.99onthe18thandmadeapaymentof$75.00onthe24th. Findthefinancechargeforthemonthandthenewbalance. 10 </li> <li> 11. CreditCards September23,2011 HWpg.178#59,1214 11 </li> <li> 12. CreditCards September23,2011 12 </li> <li> 13. CreditCards September23,2011 AverageDailyBalance TheAverageDailyBalanceisthetotalofthebalanceattheendofeachdayduringaperioddivided bythenumberofdaysintheperiod. AverageDailyBalance,orADB,isoftenusedtocalculateperiodicinterestchargesbymultiplying theperiodicinterestratebytheaveragedailybalance.Themostcommonperiodusedforthistypeof calculationismonthly,whichcaneitherbearolling30dayperiod,oranactualcalendarmonth.The mostcommonuseofAverageDailyBalancefortypicalconsumersiscreditcardsthatcalculate monthlyfinancechargesbasedontheaveragedailybalance,althoughsomeonlydothisifthe balancefromthepriormonthisnotpaidinfullbytheduedate. ExampleofAverageDailyBalance ThemethodforfindingtheAverageDailyBalanceisillustratedinthechartbelow.Inthisexample, letsassumethefollowing: *StartingbalanceonJan1:$1,987.65 *Periodlength:7days *Purchases: oJan2:$256.78 oJan5:$78.99 oJan7:$22.21 *Payments: oJan4:$497.15 oJan7:$800.00 Startingwiththestartingbalance,addthepurchasesandsubtractthepaymentsforeachdaytofind thatdaysbalance.Besuretoincludeallthedaysintheperiod,eventhosewithnotransaction activity.Addthesedailybalances(inthiscase,sevenofthem)anddividebythenumberofdaysin theperiod(inthiscase,seven)tofindtheAverageDailyBalance. Date Purchases Payments Balance Jan01 $1,987.65 Jan02 $256.78 $2,244.43 Jan03 $2,244.43 Jan04 $497.15 $1,747.28 Jan05 $78.99 $1,826.27 Jan06 $1,826.27 Jan07 $22.21 $800.00 $1,048.48 TotalofDailyBalances: $12,924.81 NumberofDays: 7 AverageDailyBalance: $1,846.40 Asyoucansee,makingpaymentsearliercanreduceyouroverallAverageDailyBalance.This,in turn,willreduceyourinterestpayments. 13 </li> <li> 14. CreditCards September23,2011 CalculatingtheAverageDailyBalance LetssayyourAPRis12%andyourbillingcycleis25dayslong. Youstartedthebillingcyclewithabalanceof$100.OnDay4,youmadea$100purchase.On Day20,a$25paymentwascreditedtoyouraccount.Yourdailybalanceduringthebillingcycle was: Day13:$100 Day420:$200($100purchase) Day2025:$175($25credit) Tocalculateyouraveragedailybalanceyoumusttotalyourbalancefromeachdayinthebilling cycleanddividebythenumberofdaysinthecycle. (Day1Balance+Day2Balance+Day3Balance)/numberofdaysinbillingcycle $4575/25=$183 CalculatingtheAverageDailyBalanceFinanceCharge Basedonthedetailslistedabove,yourfinancechargeusingtheaveragedailybalancemethod wouldbe: $183*.12*25/365=$1.50 Ifyoucontinuedmakingminimumpaymentsandnoadditionalchargesonthisaccount,youdpay $18.00infinancechargesoverthecourseofayear. 14 </li> <li> 15. CreditCards September23,2011 OnFridayyouhadabalanceof$52onyourcreditcard. OnMondayyouspent$17fromyourcreditcard. OnWednesdayyouspent$24. Findyouraveragedailybalanceforoneweek,(7days) startingfromFriday. *StartingbalanceonJan1:$1,987.65 APR22% *Periodlength:7days *Purchases: oJan2:$256.78 oJan5:$78.99 oJan7:$22.21 *Payments: oJan4:$497.15 oJan7:$800.00 15 </li> <li> 16. CreditCards September23,2011 YouOpenedaCreditCardinJanuary.Youpaidyour balanceinfullforJanuaryandFebruary,andinMarch youleft$100notpaid.Youmakethefollowing purchasesandpayments. March29April27 Purchases March31 $25.40 QuikTrip April1 $56.70 Macys April9 $11.56 HongKongInn April14 $31.42 Conoco April17 $107.23 BestBuy April20 $7.43 ChickfilA April24 $23.68 Dillards Payments April27 $45.00 FindtheAverageDailyBalance FindtheFinanceCharges FindthebeginningbalanceforthenextStatement 16 </li> <li> 17. CreditCards September23,2011 NewStatement April28May27 Purchases May3 $75.00 May12 $32.63 Payments May26$30.00 17 </li> <li> 18. CreditCards September23,2011 Forexample,ifauserhada$1,000transactionandrepaiditinfullwithinthisgraceperiod,therewouldbenointerest charged.If,however,even$1.00ofthetotalamountremainedunpaid,interestwouldbechargedonthe$1,000fromthedate ofpurchaseuntilthepaymentisreceived.Theprecisemannerinwhichinterestischargedisusuallydetailedinacardholder agreementwhichmaybesummarizedonthebackofthemonthlystatement.Thegeneralcalculationformulamostfinancial institutionsusetodeterminetheamountofinteresttobechargedisAPR/100xADB/365xnumberofdaysrevolved. TaketheAnnualpercentagerate(APR)anddivideby100thenmultiplytotheamountoftheaveragedailybalance(ADB) dividedby365andthentakethistotalandmultiplybythetotalnumberofdaystheamountrevolvedbeforepaymentwas madeontheaccount. Financialinstitutionsrefertointerestchargedbacktotheoriginaltimeofthetransactionanduptothetimeapaymentwas made,ifnotinfull,asRRFCorresidualretailfinancecharge.Thusafteranamounthasrevolvedandapaymenthasbeen made,theuserofthecardwillstillreceiveinterestchargesontheirstatementafterpayingthenextstatementinfull(infact thestatementmayonlyhaveachargeforinterestthatcollectedupuntilthedatethefullbalancewaspaid,i.e.whenthe balancestoppedrevolving). 18 </li> </ul>

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