Comparing Costs of Checking Accounts. What would be the net annual cost of the following checking accounts? a. Monthly fee, $2.95; processing fee, $0.35 per check; checks written, an average of 31 a month. b. Interest earnings of 7 percent with a $650 minimum balance; average monthly balance, $700; monthly service charge of $16 for falling below the minimum balance, which occurs three times a year (no interest earned in these months). Solution: a. (31 checks * 12 months * $0.35) + (2.95 * 12 months) = 130.20 + $35.40 = $165.60 b. $700 * .07 = $49 * 9/12 (nine months out of twelve months the minimum balance is met) = $36.75 – (16*3) this is the service charge for the three months below the minimum balance = $11.25 net cost
Comparing Costs of Checking Accounts. What would be the net annual cost of the following checking accounts? a. Monthly fee, $2.95; processing fee, $0.35 per check; checks written, an average of 31 a month. b. Interest earnings of 7 percent with a $650 minimum balance; average monthly balance, $700; monthly service charge of $16 for falling below the minimum balance, which occurs three times a year (no interest earned in these months). Solution: a. (31 checks * 12 months * $0.35) + (2.95 * 12 months) = 130.20 + $35.40 = $165.60 b. $700 * .07 = $49 * 9/12 (nine months out of twelve months the minimum balance is met) = $36.75 – (16*3) this is the service charge for the three months below the minimum balance = $11.25 net cost
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
Comparing Costs of Checking Accounts. What would be the net annual cost of the following
checking accounts?
a. Monthly fee, $2.95; processing fee, $0.35 per check; checks written, an average of 31 a
month.
b. Interest earnings of 7 percent with a $650 minimum balance; average monthly balance,
$700; monthly service charge of $16 for falling below the minimum balance, which occurs three
times a year (no interest earned in these months).
Solution:
a. (31 checks * 12 months * $0.35) + (2.95 * 12 months) = 130.20 + $35.40 = $165.60
b. $700 * .07 = $49 * 9/12 (nine months out of twelve months the minimum balance is met) =
$36.75 – (16*3) this is the service charge for the three months below the minimum balance
= $11.25 net cost
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