November 19, 2015

7.3 Finance Charge: Average Daily Balance Method.

1.)Average Daily-Balance Method: ______________________________________________________________________________________________________

2.) The first step is to find the _________________________.

3.)The second is step is to calculate the ___________________________________________________.

4.) The third step is to calculate the ___________________________________________________.

5) EXAMPLE 1: Sierra Warren has a charge account with a company that computes the finance charge using the average daily-balance-new purchases included. She checks to be sure the average daily balance is correct. See figure 7.3 for part of her statement. STEP 1: Find the sum of daily balances.

STEP 2: Find the number of days

STEP 3: Find the average daily balance

November 19, 2015

7) EXAMPLE 2: Sierra Warren (from example 1) checks the finance charge and the new balance. The finance charge is computed at 2% of the average daily balance. What is her new balance. STEP 1: Find the finance charge.

STEP 2: Find the unpaid balance.

STEP 3: Find the new purchases.

STEP 4: Find the new balance.

#8

Write the highlighted

totals next to the

statement on

your paper

Find the total # of days

Find the total sum of balances

Use these to find a)

November 19, 2015

9) EXAMPLE 3: Vana Dodd’s credit card finance charge is based on the average-daily-balance method-new purchases included. Her monthly periodic rate is 2.3% and her finance charge was $29.00 for the last billing cycle. Find her average daily balance.

HINT: Let a = Vana’s average daily balance,

Finance charge = Average Daily Balance X periodic rate. _____________ = __________________ X _____________