1.A cheque account requires a minimum balance of $750 for interest to be earned at an annual...

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1.A cheque account requires a minimum balance of $750 for interest to be earned at an annual rate of 4 per cent. An account holder has maintained an average balance of $500 for the first six months and $1000 for the remaining six months. The account holder writes an average of 60 cheques per month and pays $0.02 per cheque, although it costs the bank $0.05 to clear a cheque.

What average return does the account holder earn on the cheque account?

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

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.

How much should the bank increase its cheque fee to the account holder to ensure that the average interest it pays on this account is 5 per cent?

Assume that the minimum required balance is $750. LO 15.4

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Financial Institutions Management A Risk Management

ISBN: 9781743073551

4th Edition

Authors: Helen Lange, Anthony Saunders, Marcia Millon Cornett

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