   Chapter 13.I, Problem 8RE 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 8. March $560.00 _____$121.37 $55.00 _____ To determine To calculate: The finance charge and the new balance at the end of the month if Kathy Hansen has a revolving credit account, the previous month balance is$560.00, annual percentage rate is 21%, purchase and cash advances are $121.37 and payments and credits are$55.00.

Explanation

Given Information:

Kathy Hansen has a revolving credit account, the previous month balance is $560.00, annual percentage rate is 21%, purchase and cash advances are$121.37 and payments and credits are $55.00. 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 multiplying the balance of the previous month with the monthly periodic rate. Finance Charge=Previous month's 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 balance +Finance charge+Purchase and cash advancesPayments and credits Calculation: Consider that previous month balance is$560.00, annual percentage rate is 21%, purchase and cash advances are $121.37 and payments and credits are$55.00.

Compute monthly periodic rate by substituting annual percentage rate equals to 21% in the below formula,

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

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