SECTION 7 4 Finance Charge AverageDailyBalance pp 268

SECTION 7 -4 Finance Charge: Average-Daily-Balance pp. 268 -272 Method (New Purchases Included)

SECTION 7 -4 • • • Click to edit Master text styles Section Objective Second level Compute: Third level • finance charge based on the Fourth level average-daily-balance method where Fifth levelnew purchases are included 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 2 MBA, Section 7 -4, Slide 2 of 18

SECTION 7 -4 • Click to edit Master text styles Formulas • Second level Average Daily Balance = Sum of Daily Balances ÷ Number of Days • Finance Third. Charge level= Average Daily Balance × Periodic Rate Balancelevel = Unpaid Balance + Finance Charge + New Purchases • New Fourth • Fifth level 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 3 MBA, Section 7 -4, Slide 3 of 18

SECTION 7 -4 • Click to edit Master text styles • Second level • Third level A Financial Gem? p. 268 • Fourth level If you had a choice between paying a • Fifth level finance charge based on your average daily balance with or without new purchases, which one would you pick, and why? 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 4 MBA, Section 7 -4, Slide 4 of 18

SECTION 7 -4 • • • Click to edit 1 Master text styles Example Second level Aiesha Miller has a charge account where Third level the finance is computed using the average. Fourth level method that includes new daily-balance purchases. Fifth level She checks to be sure the average daily balance is correct. Her account statement is shown in Figure 7. 7 below. 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 5 MBA, Section 7 -4, Slide 5 of 18

SECTION 7 -4 • • • Click to edit Figure 7. 7 Master text

SECTION 7 -4 • • • Click to edit text styles Figure 7. 7 Master (cont. ) Second level Third level Fourth level Fifth level 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 7 MBA, Section 7 -4, Slide 7 of 18

SECTION 7 -4 • • • Click to edit 1 Master text styles Example Answer: Step 1 Find the sum Second levelof daily balances. Third level Fourth level Fifth level 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 8 MBA, Section 7 -4, Slide 8 of 18

SECTION 7 -4 • • • Click to edit 1 Master text styles Example Answer: Step 2 Second level Find the average daily balance. Third level Sum of Daily Balances ÷ Number of Days Fourth level $3, 628. 50 ÷ 31 = $117. 048 or $117. 05 Fifth level 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 9 MBA, Section 7 -4, Slide 9 of 18

SECTION 7 -4 • • • Click to edit 2 Master text styles Example Second level Aiesha Miller (from Example 1) checks the Third level finance charge and the new balance. The Fourth financelevel charge is 2 percent of the average daily level balance. Fifth What is the new balance? 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 10 MBA, Section 7 -4, Slide 10 of 18

SECTION 7 -4 • • • Click to edit 2 Master text styles Example Answer: Step 1 Second level Find the unpaid balance. Third level Previous Balance – (Payments + Credits) Fourth level $125. 80 – $70. 00 = $55. 80 Fifth level 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 11 MBA, Section 7 -4, Slide 11 of 18

SECTION 7 -4 • • • Click to edit 2 Master text styles Example Answer: Step 2 Second level Find the finance charge. Third level Average Daily Balance × Periodic Rate Fourth level $117. 05 × 2% = $2. 3418 or $2. 34 Fifth level 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 12 MBA, Section 7 -4, Slide 12 of 18

SECTION 7 -4 • • • Click to edit 2 Master text styles Example Answer: Step 3 Second level Find the new purchases. Third level $25. 85 Fourth level Fifth level 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 13 MBA, Section 7 -4, Slide 13 of 18

SECTION 7 -4 • • • Click to edit 2 Master text styles Example Answer: Step 4 Second level Find the new balance. Third level Unpaid Balance + Finance Charge + New Fourth level Purchases Fifth level $55. 80 + $2. 34 + $25. 85 = $83. 99 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 14 MBA, Section 7 -4, Slide 14 of 18

SECTION 7 -4 • • • Click to edit 1 Master text styles Practice Second level Deepaklevel Sankaran received his credit card statement Third for the billing period of 7/15 to 8/14. Fourth level His previous balance was $820. 47. His payment of $600 was posted on 7/22. On 8/4 new purchases of Fifth level $144. 39 were posted. No other transactions occurred during the billing period. The finance charge is 1. 25 percent of the average daily balance. 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 15 MBA, Section 7 -4, Slide 15 of 18

SECTION 7 -4 • • • Click to edit 1 Master text styles Practice (cont. ) Second level What islevel the average daily balance? Third What is the finance charge? Fourth level What is the new balance (new purchases included)? Fifth level 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 16 MBA, Section 7 -4, Slide 16 of 18

SECTION 7 -4 • • • Click to edit 1 Master text styles Practice Answer Second level Average daily balance: $407. 19 Third level Finance charge: $5. 09 Fourth level New balance: $369. 95 Fifth level 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 17 MBA, Section 7 -4, Slide 17 of 18

END OF SECTION 7 -4 Finance Charge: Average-Daily-Balance Method (New Purchases Included)

SECTION 7 -4 • • • Homework: Click to edit 1 -7; Master 11 -18 textand styles then pick up section and 7 -4 worksheets Second 7 -3 level Third level Fourth level Fifth level 11/27/2020 Copyright © Glencoe/Mc. Graw-Hill 19 MBA, Section 7 -4, Slide 19 of 18