Use the Following Information to Answer the Question

question 34

Multiple Choice

Use the following information to answer the question. A current deposit account requires a minimum balance of $500 if annual interest of 5 per cent is to be earned monthly on its deposits. An account holder has maintained an average balance of $300 for the first nine months of the year and $800 for the last three months of the year. She has written an average of 20 cheques a month and is not charged for these services. However, it costs the bank $0.02 to process each cheque.
What is the average return earned (both explicit and implicit) by the account holder over the full year?

• A) 2.98 per cent
• B) 3.48 per cent
• C) 4.28 per cent
• D) 4.79 per cent

---

Definitions:

Negative Income Tax

Cash payments by the government to the poor—an income tax in reverse. The cash payments decrease as income levels increase.

Unemployment Rate

The percentage of the labor force that is jobless and actively looking for employment.

Poverty Rate

The percentage of the population that lives below the national poverty line, reflecting the portion of the community considered to be living in financial hardship.

Charles Murray

An American political scientist and author known for his works on intelligence and social policy.