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Calculate a Periodic Finance Charge
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DSST
DSSTPF.027 Calculate a Periodic Finance Charge
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A card's statement supplies a monthly periodic rate of 1.55% and an average daily balance of $1,860. A student divides 1.55% by 12 before multiplying. Which explanation best identifies the problem?
A
The student should multiply by 12 because every monthly rate must be annualized before use.
B
The student should use the ending balance because rates cannot be used with average daily balance.
C
The student should subtract new purchases because all average daily balance methods exclude purchases.
D
The rate is already a monthly periodic rate, so dividing by 12 converts it again and understates the charge.
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