Suppose that Bank of America pays a

4%

annual interest rate on checking account balances while having to meet a reserve requirement of 10%. Assume that the Fed pays Bank of America an interest rate of

0.35%

on its holdings of reserves and that Bank of America can earn

8%

on its loans and other investments.

How do reserve requirements affect the amount that Bank of America can earn on $1,000 in checking account deposits? Ignore any costs Bank of America incurs on the deposits other than the interest it pays to depositors.

The 10% reserve requirement reduces the amount Bank of America can earn on $1,000 by

$6.706.70.

(Enter

your answer rounded to two decimal

places.)