4. Suppose you earn and spend $2,400 per month. You receive your paycheck on the first day of the month and must decide how much of it to hold as cash or in a non- interest-earning checking account and how much to deposit in your savings account. The savings account pays 5 percent interest; however, the bank charges you $2 for each withdrawal you make during the month. a. What will be your average demand for money over the month? b. If the interest rate rose to 10 percent, what would be your average demand for money over the month? Is this change consistent with your expectations about the demand for money?

4. Suppose you earn and spend $2,400 per month. You receive your paycheck on the first day of the month and must decide how much of it to hold as cash or in a non- interest-earning checking account and how much to deposit in your savings account. The savings account pays 5 percent interest; however, the bank charges you $2 for each withdrawal you make during the month. a. What will be your average demand for money over the month? b. If the interest rate rose to 10 percent, what would be your average demand for money over the month? Is this change consistent with your expectations about the demand for money?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

4. Suppose you earn and spend $2,400 per month. You receive your paycheck on the
first day of the month and must decide how much of it to hold as cash or in a non-
interest-earning checking account and how much to deposit in your savings account.
The savings account pays 5 percent interest; however, the bank charges you $2 for
each withdrawal you make during the month.
a. What will be your average demand for money over the month?
b. If the interest rate rose to 10 percent, what would be your average demand for
money over the month? Is this change consistent with your expectations about
the demand for money?

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11. Suppose you have a balance of $5400 on your credit card, which charges an APR of 18%. If you want to pay off the balance in 18 months, how much should you pay each month? What is the total amount of interest you will end up paying? Assume that you charge no additional expenses to the card. 5400 012
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