Questions: On February 1, the billing date, Carol Ann had a balance due of 125.68 on her credit card. Her bank charges an interest rate of 1.25% per month. She made the transactions described in the table during the month. Feb. 8 Charge: Art supplies 21.97 Feb. 10 Payment 110.00 Feb. 20 Charge: Flowers delivered 65.92 Feb. 26 Charge: Music CD 12.18 a) Determine the finance charge on March 1, using the previous balance method b) Determine the new balance on March 1. a) The finance charge on March 1 is

Solution Steps

a) To determine the finance charge using the previous balance method, calculate the interest on the balance due on February 1 using the monthly interest rate. The finance charge is the product of the balance and the interest rate.

b) To determine the new balance on March 1, start with the balance on February 1, add all charges made during the month, subtract any payments, and then add the finance charge calculated in part (a).

To find the finance charge on March 1, we use the formula:

\[ \text{Finance Charge} = \text{Initial Balance} \times \text{Interest Rate} \]

Substituting the values:

\[ \text{Finance Charge} = 125.68 \times 0.0125 = 1.571 \]

Rounding to the nearest cent, we have:

\[ \text{Finance Charge} \approx 1.57 \]

To determine the new balance on March 1, we use the formula:

\[ \text{New Balance} = \text{Initial Balance} + \text{Total Charges} - \text{Payment} + \text{Finance Charge} \]

First, we calculate the total charges:

\[ \text{Total Charges} = 21.97 + 65.92 + 12.18 = 100.07 \]

Now substituting all values into the new balance formula:

\[ \text{New Balance} = 125.68 + 100.07 - 110.00 + 1.571 \]

Calculating this gives:

\[ \text{New Balance} = 117.321 \]

Rounding to the nearest cent, we have:

\[ \text{New Balance} \approx 117.32 \]

Final Answer