To compute the finance charge using the average daily balance method, follow these steps:

1. Calculate the daily balances for each period in April.

• April has 30 days.
• Use the starting balance and update it based on the transactions made throughout the month.

Transactions:

• April 1 to April 4 (4 days): Starting balance = $280.
• April 5 to April 13 (9 days): After charging $43 for a coat, the balance becomes $280 + 43 = 323$.
• April 14 to April 22 (9 days): After making a payment of $130, the balance becomes $323 - 130 = 193$.
• April 23 to April 26 (4 days): After charging $105 for DVDs, the balance becomes $193 + 105 = 298$.
• April 27 to April 30 (4 days): After charging $45 for groceries, the balance becomes $298 + 45 = 343$.

2. Find the total of all daily balances.

Multiply each balance by the number of days it was the balance:

• $280 \times 4 = 1,120$
• $323 \times 9 = 2,907$
• $193 \times 9 = 1,737$
• $298 \times 4 = 1,192$
• $343 \times 4 = 1,372$

3. Sum all the weighted daily balances:

$1,120 + 2,907 + 1,737 + 1,192 + 1,372 = 8,328$

4. Compute the average daily balance:

$\text{Average Daily Balance} = \frac{8,328}{30} = 277.6$

5. Compute the monthly finance charge.

The annual interest rate is 18%, so the monthly interest rate is: $\text{Monthly Interest Rate} = \frac{18\%}{12} = 1.5\%$

The finance charge is calculated by multiplying the average daily balance by the monthly interest rate: $\text{Finance Charge} = 277.6 \times 0.015 = 4.16$

Final answer:

The finance charge is $4.16.

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Would you like more details on any step or do you have any questions?

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Related Questions:

1. How would the finance charge change if the annual interest rate was higher?
2. What happens to the finance charge if more payments are made within the month?
3. Can you explain how the average daily balance method differs from the adjusted balance method?
4. How does compounding affect the finance charge on a credit card account?
5. What would the finance charge be for different starting balances?

Tip:

Paying your credit card balance early in the billing cycle can help reduce your average daily balance and lower the finance charge.