The Shirley State Bank has $90 million in transaction deposits subject to legal reserves.The bank must hold 3 percent legal reserves up to $43.9 million of transaction deposits and 10 percent legal reserves on any amount above this.What is the bank's total legal reserve requirement?
A)$2.700 million
B)$1.449 million
C)$5.927 million
D)$4.170 million
E)None of the options is correct

Question

Quizplus · Accepted Answer

First, we calculate the legal reserve requirement for the first $43.9 million of transaction deposits:

Legal reserve requirement = $43.9 million x 0.03 = $1.317 million

Then, we calculate the legal reserve requirement for the remaining transaction deposits:

Remaining deposits = $90 million - $43.9 million = $46.1 million

Legal reserve requirement for remaining deposits = $46.1 million x 0.10 = $4.61 million

Finally, we add the two legal reserve requirements together:

Total legal reserve requirement = $1.317 million + $4.61 million = $5.927 million

Therefore, the answer is C) $5.927 million.

The Shirley State Bank Has $90 Million in Transaction Deposits