   Chapter 13.I, Problem 10RE ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

#### Solutions

Chapter
Section ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# Kathy Hansen has a revolving credit account. The finance charge is calculated on the previous month's balance, and the annual percentage rate is 21%. Complete the following five-month account activity table for Kathy. Previous Purchases Month's Finance and Cash Payments Nest Balance Month Balance Charge Advances and Credits End of Month 10. May $282.33$105.00

To determine

To calculate: The finance charge and the new balance if Kathy Hansen has a revolving credit account, the previous month’s balance is $628.75 such that the current month is May, annual percentage rate is 21%, purchase and cash advances are$282.33 and payments and credits are $105.00. Explanation Given Information: Kathy Hansen has a revolving credit account, previous month’s balance is$628.75 such that the current month is May, annual percentage rate is 21%, purchase and cash advances are $282.33 and payments and credits are$105.00.

Formula used:

Follow the steps mentioned below to compute the finance charge and new balance by using the unpaid balance method:

Step 1: The monthly periodic rate is computed by dividing the annual percentage rate by the number of months in a year that is 12.

Monthly Periodic Rate=Annual Percentage Rate12

Step 2: The finance charge is computed by multiplication of the previous month balance with the monthly periodic rate.

Finance Charge=Previous month balance×periodic rate

Step 3: The new balance is computed by adding all previous month balance, finance charge, purchases and cash advances and subtracting the total of payments and credits.

New balance= Previous rate +Finance rate+Purchase and cash advancesPayments and credits

Calculation:

Consider the previous month’s balance $628.75 such that the current month is May, annual percentage rate is 21%, purchase and cash advances are$282.33 and payments and credits are \$105.00.

Compute monthly periodic rate by substituting annual percentage rate equals to 21%.

Monthly Periodic Rate=Annual Percentage Rate12=21%12=1

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