A NOW Account Requires a Minimum Monthly Balance of $500

Multiple Choice

A NOW account requires a minimum monthly balance of $500 if annual interest of 5 percent is to be earned monthly on its deposits.An account holder has maintained an average balance of $300 for the first nine months of the year and $800 for the last three months of the year.She has written an average of 20 checks a month and is not charged for these services.However,it costs the bank $0.02 to process each check.

The bank would like to limit the average return (both explicit and implicit) earned by the account holder to 5 percent per year.How much should it charge for processing each check to this Account holder assuming that it will pay annual interest of 5 percent and minimum balances of $200 are maintained?

A) 1 cent per check.
B) 2 cent per check.
C) 3 cent per check.
D) 4 cent per check.