Chapter4 Financial Planning Exercise 5 Calculating the net costs of checking acc
ID: 2794746 • Letter: C
Question
Chapter4 Financial Planning Exercise 5 Calculating the net costs of checking accounts Determine the annual net cost of these checking accounts. A "- sign must precede any negative net cost answers. Round your intermediate calculations to two decimal places. a. Monthly fee $6, check-processing fee of 20 cents, average of 30 checks written per month. Round the answer to the nearest cent b. Annual interest of 3.5% paid if balance exceeds $600, $8 monthly fee if account falls below minimum balance, average monthly balance $650, account falls below $600 during 4 months. Round the answer to the nearest cent.Explanation / Answer
a) Number of checks = 30
check processing fee = 20 cents
Cost related to checks = number of checks * processing fee
= 30 * .2 = $ 6
Monthly fee = $6
Annual net cost of checking account = cost related to checks + monthly fee*12 = 6+6*12 + 6+72 = $ 78
b) Amount charged if avg balance falls below $600 = $8
This happens four times , so total amount charged = 8*4 = $32
interest received if amount exceeds $600 = 3.5%
total interest received = 650*3.5%*8/12 = $ 15.17
net cost = 32-15.17 = $16.83