A NOW Account Requires a Minimum Monthly Balance of $500

question 68

Multiple Choice

A NOW account requires a minimum monthly balance of $500 if annual interest of 5 percent 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 checks a month and is not charged for these services.However,it costs the bank $0.02 to process each check.

What is the average return earned (both explicit and implicit) by the account holder over the full year?

• A)2.98 percent.
• B)3.48 percent.
• C)4.28 percent.
• D)4.79 percent.

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Definitions:

Readily Used

implies resources or items that are easily accessible and can be immediately employed for a specific purpose or need.

Great Recession

A severe global economic downturn that began in 2007 and lasted until 2009, marked by high unemployment and significant financial instability.

Opportunity Cost

The concept of opportunity cost represents the benefits a person or business misses out on when choosing one alternative over another.

Speculative Motive

The desire to hold cash or assets in anticipation of making gains based on future price movements.