Nancy Tai (solution attached)
1. Average daily balance is as follows
Period | (a) # Days | (b) Balance | (c) x (b) |
11/01 – 11/04 | 4 | $600 | $2,400 |
11/05 – 11/19 | 5 | $600 + $80 = $680 | 3,400 |
11/10 – 11/14 | 5 | $680 - $200 = $480 | 2,400 |
11/15 – 11/29 | 15 | $480 + $100 = $580 | 8,700 |
11/30 | 1 | $580 + $50 = $630 | 630 |
|
|
| $17,530 |
($17,530/30) = $584.33 x .013 = $7.596 | |||
a. Previous balance method: $600 x .013 = $7.80
b. Adjusted balance method: $600 + $230 - $200 = $630
$630 x .013 = $8.19
Assuming the average balance is increasing, the previous balance method would be preferred since it would provide smaller finance charges.
2.Going back in time, when Nancy was just about to open her account, and assuming she could choose among credit sources that offered different monthly balance determinations, and assuming further that Nancy would increase her outstanding balance over time, which credit source would you recommend? Explain.
12 years ago
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- nancy_tai_solution_attached.doc