BA218 Ch 4 hw
(partial credit) 2 What would be the net annual cost of the following checking accounts? (LO4.4) a. Monthly fee, $3.75; processing fee, 25 cents per check; checks written, an average of 14 a month.
a) Monthly fees = $ 3.75 Processing fees = 0.25% Average number of checks written per month = 14 Annual cost = 12×($3.75 +(0.25×14) = $87
(LO4.3) 4. Janie has a joint account with her mother with a balance of $562,000. Based on $250,000 of Federal Deposit Insurance Corporation coverage, what amount of Janie's savings would not be covered by deposit insurance?
(250,000 covered per person in joint acct = 500000) 1/2 *562000 exceeds the 250000 limit by 31000
(partial credit) 2 b. Interest earnings of 4 percent with a $500 minimum balance; average monthly balance, $600; monthly service charge of $15 for falling below the minimum balance, which occurs three times a year (no interest earned in these months).
Net annual cost $ 27 [600 x .04 = 24] x [9(months)/12(months)] = 32 15 x 3 = 45 (no interest earned mo's) 45 - 32 = 13
(LO4.3) 7. A certificate of deposit often charges a penalty for withdrawing funds before the maturity date. If the penalty involves two months of interest, what would be the amount for early withdrawal on a CD paying 5 percent and valued at $20,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Annual interest = Annual interest rate × Investment = 0.05 × $20,000 = $1000 Penalty = 2 months of interest = (2 / 12) × Annual interest = (2 / 12) × $1000 = $166.66 = $166.67
(LO4.2) 6. A payday loan company charges 5 percent interest for a two-week period. What would be the annual interest rate from that company? (Assume an even 52 weeks per year. Enter your answer as a whole percent.)
Annual percentage rate = Rate per period × Number of periods per year = 0.026 × (52 weeks / 2 weeks) = 1.30, or 130%
(LO4.3) 8. What would be the annual percentage yield for a savings account that earned $56 in interest on $800 over the past 365 days? (Enter your answer as a whole percent.)
APY = 100 (Interest / Principal) = 100 ($56.00 / $800) = 7%
1 b. Brenda Young desires to have $15,000 eight years from now for her daughter's college fund. If she will earn 6 percent (compounded annually) on her money, what amount should she deposit now? Use the present value of a single amount calculation. (Round PV factor to 3 decimal places and final answer to the nearest whole dollar.)
15000/1.594 (exh 1-a) = 9410.29
1 c. What amount would you have if you deposited $1,800 a year for 30 years at 8 percent (compounded annually)? (Round FVA factor to 3 decimal places and final answer to the nearest whole dollar.)
1800*113.280 (exh 1-b) = 203904
(LO4.4) 9. A bank that provides overdraft protection charges 12 percent for each $100 (or portion of $100) borrowed when an overdraft occurs. a. What amount of interest would the customer pay for an overdraft of $188? (Assume the interest is for the full amount borrowed for a whole year.)
188 rounded to 200 increment 200*12%=24
(LO4.4) 10. What is the annual opportunity cost of a checking account that requires a minimum balance of $300 to avoid service charges? Assume an interest rate of 3 percent.
300*3% = 9
(LO4.1) 3. If a person has ATM fees each month of $18 for six years, what would be the total cost of those banking fees?
6*(18*12)=1296 6(18*12) = 1296
1. For each of these situations, determine the savings amount. Use the time value of money tables in Exhibit 1-A, Exhibit 1-B and Exhibit 1-C. (LO4.3) a. What would be the value of a savings account started with $700, earning 4 percent (compounded annually) after 10 years?
700*1.480 (exhibit 1-a) = 1036
(LO4.3) 5. With a 28 percent marginal tax rate, would a tax-free yield of 7 percent or a taxable yield of 9.5 percent give you a better return on your savings?
9.5% * (1-0.28) 9.5% * 0.72= .0684 6.84% is less than 7% So 7% would be preferred
9. b. How much would be saved by using the overdraft protection loan if a customer has three overdraft charges of $30 each during the year?
= (3*$30) - 24 = 90 - 24 = $66
