Difficulty: Easy
Correct Answer: 118.04 dollars
Explanation:
Introduction / Context:
This question focuses on a very simple but practical application of percentage calculations in personal finance. Credit card and loan companies often compute a monthly finance charge by multiplying the average daily balance by a monthly interest rate.
Given Data / Assumptions:
Concept / Approach:
The finance charge for one month can be found using:
Finance charge = Balance * Monthly rate The monthly rate must be expressed as a decimal rather than a percentage when performing the multiplication, so 1.4% becomes 0.014.
Step-by-Step Solution:
Step 1: Convert the interest rate to decimal form: 1.4% = 0.014. Step 2: Multiply the average daily balance by the decimal rate. Step 3: Finance charge = 8431.10 * 0.014. Step 4: Compute this product to obtain approximately 118.04 dollars. Therefore, the finance charge for the month is 118.04 dollars.
Verification / Alternative Check:
As a quick check, 1% of 8,431.10 dollars is about 84.31 dollars. 0.4% of the balance is roughly 33.72 dollars. Adding these gives around 118.03 dollars, which is extremely close to the more accurate computed answer of 118.04 dollars.
Why Other Options Are Wrong:
Option A (98.04 dollars) would correspond to a smaller monthly rate of about 1.16%.
Option B (88.04 dollars) and option C (68.04 dollars) correspond to even smaller rates and do not match 1.4%.
Option E (128.04 dollars) implies a higher rate than 1.4% per month.
Common Pitfalls:
Learners occasionally divide by 100 twice, effectively using a rate of 0.014% instead of 1.4%, which yields a very tiny finance charge. Others might confuse annual and monthly rates and divide or multiply by 12 incorrectly. Always match the period of the rate with the period of the balance.
Final Answer:
The monthly finance charge on the account is 118.04 dollars.
Discussion & Comments