Average return does account holder earn on the account

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Reference no: EM131898036

A NOW account requires a minimum balance of $750 for interest to be earned at an annual rate of 4 percent. An account holder has maintained an average balance of $500 for the first six months and $1,000 for the remaining six months. The account holder writes an average of 60 checks per month and pays $0.02 per check, although it costs the bank $0.05 to clear a check.

a. What average return does the account holder earn on the account?

b. What is the average return if the bank lowers the minimum balance to $400?

c. What is the average return if the bank pays interest only on the amount in excess of $400? Assume that the minimum required balance is $400

d. How much should the bank increase its check fee to the account holder to ensure that the average interest it pays on this account is 5 percent? Assume that the minimum required balance is $750.

Reference no: EM131898036

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