A DI Offers a $500 Minimum Balance NOW Account Paying

Multiple Choice

A DI offers a $500 minimum balance NOW account paying 5.5 percent annual interest.The account has a service charge of $0.05 per check, and processing costs per check are $0.15.The customer maintains a balance of $1,000, and averages 150 checks per year.What is the annual gross interest return on this account to the customer?

A) $22.50.
B) $70.00.
C) $15.00.
D) $55.00.
E) $7.50. Gross interest return = [(avg.balance above minimum × explicit interest rate) + (implicit interest) ]/avg.balance
GIR = (1,000 × 0.055) + (150 × (0.15 − 0.05) ) = $55.00 + $15.00 = $70.00