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# Buy Now, Pay Later Many people make purchases using credit cards. Why might you want to buy something using a credit card instead of cash?

## Presentation on theme: "Buy Now, Pay Later Many people make purchases using credit cards. Why might you want to buy something using a credit card instead of cash?"— Presentation transcript:

Buy Now, Pay Later Many people make purchases using credit cards. Why might you want to buy something using a credit card instead of cash?

Lesson Objective Compute the finance charge based on the average-daily-balance method–new purchases included. Content Vocabulary average-daily-balance method Computing the finance charge on a credit account based on the average balance at the end of each day of the billing period.

Aiesha Miller has a charge account where the finance is computed using the average- daily-balance method that includes new purchases. She checks to be sure the average daily balance is correct. Her account statement is shown in Figure 7.7 below. Example 1

Figure 7.7

Figure 7.7 (cont.)

Find the sum of daily balances. Example 1 Answer: Step 1

Find the average daily balance. Sum of Daily Balances ÷ Number of Days \$3,628.50 ÷ 31 = \$117.048 or \$117.05 Example 1 Answer: Step 2

Aiesha Miller (from Example 1) checks the finance charge and the new balance. The finance charge is 2 percent of the average daily balance. What is the new balance? Example 2

Find the unpaid balance. Previous Balance – (Payments + Credits) \$125.80 – \$70.00 = \$55.80 Example 2 Answer: Step 1

Find the finance charge. Average Daily Balance × Periodic Rate \$117.05 × 2% = \$2.3418 or \$2.34 Example 2 Answer: Step 2

Find the new purchases. \$25.85 Example 2 Answer: Step 3

Find the new balance. Unpaid Balance + Finance Charge + New Purchases \$55.80 + \$2.34 + \$25.85 = \$83.99 Example 2 Answer: Step 4

Deepak Sankaran received his credit card statement for the billing period of 7/15 to 8/14. His previous balance was \$820.47. His payment of \$600 was posted on 7/22. On 8/4 new purchases of \$144.39 were posted. No other transactions occurred during the billing period. The finance charge is 1.25 percent of the average daily balance. Practice 1

What is the average daily balance? What is the finance charge? What is the new balance (new purchases included)? Practice 1 (cont.)

Average daily balance: \$407.19 Finance charge: \$5.09 New balance: \$369.95 Practice 1 Answer

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