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    Comparing costs of credit using calculation methods

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    You have been pricing a compact disk player in several stores. 3 stores have the identical price of $300. Each storecharges 18% APR, has a 30 day grace period, and sends out bills on the 1st of the month. On further investigation, you find that store A calculates the finance charge by using the average daily balance method, store B uses the adjusted balance method, and store C uses the previous balance method. Assume you purchased the disk player on May 5 and made a $100 payment on June 15. What will the finance charge be if you made your purchase from store A? From store B? From store C?

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    Solution Preview

    See the attached file. Thanks

    Account Sheet for the Credits

    Date Transaction Transaction Amount Closing Credit Balance No of days Closing credit*no of days
    Debit Credit
    1-May Opening Balance $0 $0
    5-May Purchases Made $300 $300 0.00 $0 Note: Till 31st May compact disk player will enjoy the grace period, as bills are produced on 1st June
    31-May Closing Balance $300 15.00 $4,500
    15-Jun Payments made $100 $200 15.00 $3,000
    30-Jun Closing Balance $200 16.00 $3,200 ...

    Solution Summary

    The solution compares costs of credit using calculation methods.