A Bank Estimates That Their Average Balance on Demand Deposit

question 1

Multiple Choice

A bank estimates that their average balance on demand deposit accounts is $2,500, net of float. Each account costs the bank $175 per year in processing costs. The bank collects an average of $5 per month on each account in service charges. Assume reserve requirements are 10%. What is the net cost of an average demand deposit?

• A) 4.5%
• B) 4.8%
• C) 5.1%
• D) 6.8%
• E) 7.0%

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Definitions:

Funding

The act of providing financial resources, typically in the form of money, or other values such as effort or time, to support a program, project, business, or individual.

Scarcity

A fundamental economic problem of having seemingly unlimited human wants in a world with limited resources, which leads to the necessity of making choices on how to allocate resources.

Resources

Assets or inputs used in the production of goods and services, such as time, labor, and capital.

Economy

An extensive network of activities related to producing, consuming, and exchanging that assists in allocating limited resources.