What is the average implicit interest rate on a $100,000 account if the bank's average management costs are $2,500 and annual fees average $1,750?

Question

Quizplus · Accepted Answer

The implicit interest rate is calculated by subtracting the management costs and fees from the account balance and dividing by the account balance. Here, ($2,500 + $1,750) / $100,000 = 0.0425 or 4.25%. However, since the question asks for the implicit interest rate, which is the net effect on the account, we consider the negative impact of these costs, leading to a net rate of 0.75%.

What Is the Average Implicit Interest Rate on a $100,000