On February 2​, the billing​ date, Carol Ann had a balance due of ​$121.96 on her credit card. Her bank charges an interest rate of​ 1.25% per month. She made the transactions described in the table during the month.
Feb. 8
​Charge: Art supplies
​$24.25
Feb. 12
Payment
​$90.00
Feb. 21
​Charge: Flowers delivered
​$62.87
Feb. 27
​Charge: Music CD
​$13.96
​a) Determine the finance charge on March 2​, using the previous balance method.
​b) Determine the new balance on March 2.
Question content area bottom
Part 1
​a) The finance charge on March 2 is ​$
  
enter your response here.
​(Round to the nearest cent as​ needed.)

Let's first solve for the finance charge and the new balance using the **previous balance method**.

### Part a: Finance Charge on March 2

**The previous balance method** calculates the finance charge based on the balance at the start of the billing cycle (on February 2), regardless of any payments or charges made during the cycle.

- Previous balance (Feb. 2): $121.96
- Monthly interest rate: 1.25%

The formula for the finance charge is:

\[
\text{Finance charge} = \text{Previous balance} \times \frac{\text{Interest rate}}{100}
\]

Substituting the given values:

\[
\text{Finance charge} = 121.96 \times \frac{1.25}{100} = 121.96 \times 0.0125 = 1.5245
\]

Rounding to the nearest cent:

\[
\text{Finance charge} \approx 1.52
\]

So, the finance charge on March 2 is **$1.52**.

---

### Part b: New Balance on March 2

Now, we need to determine the **new balance** by adding all charges, subtracting the payment, and including the finance charge.

1. **Previous balance (Feb. 2)**: $121.96
2. **Charges during the month**:
   - Feb. 8: Art supplies = $24.25
   - Feb. 21: Flowers delivered = $62.87
   - Feb. 27: Music CD = $13.96
3. **Payment**:
   - Feb. 12: Payment = $90.00
4. **Finance charge**: $1.52 (from part a)

The new balance is calculated as:

\[
\text{New balance} = (\text{Previous balance} + \text{Charges}) - \text{Payment} + \text{Finance charge}
\]

Substitute the values:

\[
\text{New balance} = (121.96 + 24.25 + 62.87 + 13.96) - 90.00 + 1.52
\]

Simplifying:

\[
\text{New balance} = 223.04 - 90.00 + 1.52 = 134.56
\]

So, the new balance on March 2 is **$134.56**.

---

Let me know if you'd like more details or further explanation.

Here are 5 related questions you might find interesting:
1. How is the finance charge calculated using the average daily balance method?
2. What would the new balance be if the interest rate was 1.5% per month?
3. How would Carol Ann’s balance change if she made another payment during the month?
4. What are other common methods of calculating finance charges on credit card accounts?
5. How can one minimize finance charges when using a credit card?

**Tip**: Making payments before the billing date can reduce finance charges when using some methods, like the average daily balance method!

On February 2, the billing date, Carol Ann had a balance due of $121.96 on her credit card. Her bank charges an interest rate of 1.25% per month. She made the transactions described in the table during the month. Feb. 8: Charge for Art supplies, $24.25; Feb. 12: Payment, $90.00; Feb. 21: Charge for Flowers delivered, $62.87; Feb. 27: Charge for Music CD, $13.96. a) Determine the finance charge on March 2 using the previous balance method. b) Determine the new balance on March 2.

Learn how to calculate the finance charge and new balance on a credit card statement using the previous balance method. Carol Ann's balance of $121.96, with a 1.25% interest rate, is adjusted with charges for art supplies, flowers, and a music CD. Suitable for Grades 9-12.

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