   Chapter 13.I, Problem 18RE ### 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

# The Jewelry Exchange has a $30,000 line of credit with Nations Bank. The annual percentage rate is the current prime rate plus 4.7%. The balance on March I was$8,400. On March 6. the company borrowed $6,900 to pay for a shipment of supplies, and on March 17. it borrowed another$4,500 for equipment repairs. On March 24. a $10,000 payment was made on the account. The billing cycle for March has 31 days. The current prime rate is 9%.a. What is the finance charge on the account?b. What is the company's new balance?c. On April I. how much credit does the Jewelry Exchange have left on the account? (a) To determine To calculate: The finance charge if Jewelry Exchange has a$30,000 line of credit with Nations Bank. The annual percentage rate is calculated as the current prime rate plus 4.7%. On March 1 the balance was $8,400. The company borrowed$6,900 on March 6 to pay for a shipment of supplies, and it borrowed another $4,500 on March 17 for equipment repairs. On March 24, a 10,000 payment was made on the account. The billing cycle for month of March has 31 days. Current prime rate is 9%. Explanation Given Information: Jewelry Exchange has a$30,000 line of credit with Nations Bank. The annual percentage rate is calculated as the current prime rate plus 4.7%. On March 1 the balance was $8,400. The company borrowed$6,900 on March 6 to pay for a shipment of supplies, and it borrowed another $4,500 on March 17 for equipment repairs. On March 24, a 10,000 payment was made on the account. The billing cycle for month of March has 31 days. Current prime rate is 9%. Formula used: The average daily balance is computed by dividing the total sum of daily balances by the number of days in a billing cycle. Average daily balance=Sum of daily balancesdays in billing cycle The finance charge can be computed by multiplication of the average daily balance with the periodic rate. Finance Charge=Average daily balance×periodic rate Calculation: Consider annual percentage rate is current prime rate plus 4.7%, and prime rate is 9% and previous month’s balance is$8,400.

The annual percentage rate can be computed by adding 4.7% to the prime rate. Substitute the current prime rate to 9%.

Annual percentage rate=Prime rate+4.5%=9%+4.7%=13.7%

Hence, the annual percentage rate is 13.7%.

The periodic rate can be computed by dividing the annual periodic rate by number of months in a year.

Substitute annual percentage rate equals to 13.7% in the below formula;

Periodic rate=Annual percentage rate12=13.7%12=1.14%

Hence, the periodic rate is 1.14%.

Consider that previous balance is $8,400, annual percentage rate is 13.7%. The table showing the transactions is as follows:  Dates No (b) To determine To calculate: The new balance if Jewelry Exchange has a$30,000 line of credit with Nations Bank. And, the previous month’s balance is $8,400, purchases and cash advance is 11,400, finance charge is 157.14 and payment and credit is 10,000. (c) To determine To calculate: The remaining credit left on the account on April 1, if Jewelry Exchange has a$30,000 line of credit with Nations Bank. And, the new balance is $9,957.14 and credit limit is$30,000.

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