An FI offers a $2,500 minimum balance NOW 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 checks per year. Each check has a processing cost to the FI of $0.15. What is the annual gross interest return on this account to the customer?
A)$112.50.
B)$100.00.
C)$312.50.
D)$137.50.
E)$212.50.

Question

Quizplus · Accepted Answer

The first step is to calculate the annual cost of processing checks:

750 checks/year × $0.15/check = $112.50/year

Next, we need to calculate the net interest return after deducting the cost of check processing:

$5,000 × 4% = $200/year interest

$200 - $112.50 = $87.50/year net interest return

Therefore, the annual gross interest return is:

$87.50/year net interest return + $225 annual interest ($5,000 × 4%) = $312.50/year annual gross interest return.

The correct answer is C, $312.50.

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