CH5.4. Checking Account Balance. Andy has an account at South Central Savings an

ID: 2772012 • Letter: C

Question

CH5.4. Checking Account Balance. Andy has an account at South Central Savings and Loan. He does not track his checking account balance on a checkbook register. Yesterday evening, he placed 2 checks in the mail, one for $189.66 and another for $237.94. Andy accesses his account online and finds that his balance is $538.40, and all the checks he has written except for the 2 checks from yesterday have cleared. Based on his balance, Andy writes a check for a new stereo for $225.00. Andy does not intend to make a deposit in the near future. What are the consequences of his actions?

CH5.5. Adjusted Bank Balance. Mari is balancing her checkbook. Mari received her bank statement in the mail and she needs to reconcile her bank statement to her check book register. Her ending balance on the bank statement shows $1,275.59. Since then, she deposited $500 in her account and withdrew $239.00 in cash. Mari also wrote 5 checks, 2 check totaling $143.00 have cleared the bank. The 3 remaining checks total $209.09. Mary meets the banks requirements thus avoids paying bank fees.

CH5.5.a. What is the ending bank balance on Mari's bank statement?

CH5.6. Selecting a CD investment. Avery has $3,000 to invest in a certificate of deposit. The local bank offers Avery 3.25% on a 12-month FDIC-insured CD while a nonfinancial institution offers 6.25% on a 12-month CD. CH5.6.a. What is the risk premium between the offers?

What other criteria must Avery consider when deciding on whether or not she should invest in a CD, stock market, or annuity program?

Explanation / Answer

Answer CH 5.4

The check for stereo will be returned (bounced) by the Bank due to insufficient balance.

A bounced check may result in legal action and repossession of the Stereo by the seller. Andy may also be blacklisted by the rating bureaus and this bounce will reflect in the annual report.

Reason

Checking Balance as per online access = $ 538.40

Less

Checks Mailed and yet to clear ($189.66+$237.94) = $ 427.60

Available Balance = $ 110.80

Check written for Stereo = $ 225.00

Short fall = - $ 114.20

Answer CH 5.5a

Ending Balance in May’s Bank Account = $ 1,393.59

Working

Balance as per Bank Statement = $ 1275.59

Add Cash Deposit = $ 500.00

Less Cash Withdrawn = $ 239.00

Less Checks Cleared = $ 143.00

Ending Balance in Bank = $ 1393.59

Answer CH 5.5b

Adjusted Balance in Mary’s Bank Account = $ 1,187.59

Working

Ending Balance on Bank Statement

$ 1,275.59

Add : Cash Deposited

$ 500.00

Less : Cash Withdrawn

- $ 239.00

Net Balance after cash operations

$261.00

Less Checks cleared

-$143.00

Less : Checks written But un-cleared

-$209.00

Net Balance after check operations

-$349.00

Ending Balance in Bank

1275.59-349+261

$1,187.59

Answer CH 5.6a

Assuming monthly compounding of interest

Interest receivable on 3.25% FDIC Insured Deposit = $ 99

Interest receivable on 6.25% non Finance Institution = $ 193

$ Value of Risk Premium = $ 193 - $ 99 = $ 94

Risk premium in interest rate = 6.25% - 3.25% = 3.0%

Answer CH5.6b

Avery should consider the following factors while deciding the investment in various markets