An FI offers a $2500 minimum balance investment savings account paying 4% annual interest, and there are no service charges as long as the customer maintains the minimum balance.The customer maintains a balance of $5000, 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?
A)$112.50
B)$100.00
C)$312.50
D)$212.50

Question

Quizplus · Accepted Answer

The customer maintains the minimum balance of $2500, which means $2500 earns interest at 4%. The remaining balance of $2500 does not earn interest.

Interest earned on $2500 at 4% = $100

The customer writes an average of 750 cheques per year, and each cheque has a processing cost of $0.15. Therefore, the total cost of processing 750 cheques is:

750 x $0.15 = $112.50

Subtracting the cheque processing cost from the interest earned, the annual gross interest return on this account to the customer is:

$100 - $112.50 = -$12.50

However, since there are no service charges as long as the customer maintains the minimum balance of $2500, the net return is still $100, making choice C the correct answer.

An FI Offers a $2500 Minimum Balance Investment Savings Account