On October 1, the unpaid balance in an account was $185. No payments were ma

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zrarsrr2x12

Business Finance

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14) On October 1, the unpaid balance in an account was $185. No payments were made that month. The interest rate per month was 1.75% per month of the average daily balance. Find the finance charge for the month of October. 

A) $3.14 

B) $3.06 

C) $3.41 

D) $3.24

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Explanation & Answer

D) $3.24

The interest rate is already given as a per month rate, so no need to divide the interest rate by 12. The average balance for October is $185--that was the beginning and ending balance. (beg + end)/2. That times 1.75% gives $3.24. Next month, if no more payments are made, the interest would be higher because the interest from October would be capitalized (compound interest--interest on interest). 


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