What is the average implicit interest rate on a $100 000 account if the bank's average management costs are $2500 and annual fees average $1750?
A) 2.50 per cent
B) 1.75 per cent
C) 0.75 per cent
D) -0.75 per cent

Question

Quizplus · Accepted Answer

The implicit interest rate is calculated by subtracting the management costs and fees from the account balance, then dividing by the account balance. Here, ($2500 + $1750) / $100,000 = 0.0425 or 4.25%. Since this is a cost, the implicit interest rate is negative, but the closest positive rate is 0.75%.

What Is the Average Implicit Interest Rate on a $100