What is Average Daily Balance (ADB)?
average daily balance interest

Flashcard
•
Mathematics
•
9th - 12th Grade
•
Hard
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1.
FLASHCARD QUESTION
Front
Back
Average Daily Balance (ADB) is a method used to calculate interest on a credit card or loan by averaging the balance over a specific period of time.
2.
FLASHCARD QUESTION
Front
How is interest calculated using Average Daily Balance?
Back
Interest is calculated by multiplying the Average Daily Balance by the daily periodic rate (APR divided by 365) and then by the number of days in the billing cycle.
3.
FLASHCARD QUESTION
Front
What does APR stand for?
Back
APR stands for Annual Percentage Rate, which is the yearly interest rate charged on borrowed money.
4.
FLASHCARD QUESTION
Front
If a credit card has an APR of 15.5%, what is the daily periodic rate?
Back
The daily periodic rate is calculated by dividing the APR by 365. For 15.5%, it is 0.04247% per day.
5.
FLASHCARD QUESTION
Front
What is the formula to calculate interest using Average Daily Balance?
Back
Interest = (Average Daily Balance) x (Daily Periodic Rate) x (Number of Days in Billing Cycle).
6.
FLASHCARD QUESTION
Front
What is the Average Daily Balance for a period of 30 days with a balance of $1000 every day?
Back
The Average Daily Balance is $1000.
7.
FLASHCARD QUESTION
Front
How does a higher Average Daily Balance affect interest charges?
Back
A higher Average Daily Balance results in higher interest charges because interest is calculated based on the balance.
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