An FI offers a $2,500 minimum balance chequing account paying 4 percent annual interest, and there are no service charges as long as the customer maintains the minimum balance. The customer maintains a balance of $5,000, and averages 750 cheques per year. Each cheque has a processing cost to the FI of $0.15. What is the annual gross interest return on this account to the customer?

Question

Quizplus · Accepted Answer

The customer maintains a balance of $5,000 which is above the minimum balance requirement of $2,500, so there are no service charges.

The annual interest earned by the customer is:

$5,000 x 0.04 = $200

The annual cost to process cheques is:

750 x $0.15 = $112.50

Therefore, the annual gross interest return on the account is:

$200 - $112.50 = $87.50

However, since the question asks for the gross interest return, which includes the cost of processing cheques, the answer is:

$200 + $112.50 = $312.50

An FI Offers a $2,500 Minimum Balance Chequing Account Paying