Ask Question
8 June, 09:22

Lucky Louie's bank requires a minimum balance at all times of $1500 in order to provide free checking services. The bank pays .5% per annum interest on the minimum balance. If you do not maintain the balance, account service fees are $4 per month. Assuming Lucky can earn 2.5% on his money not sitting at the bank, what is his net benefit to maintaining the minimum balance?

+3
Answers (1)
  1. 8 June, 09:23
    0
    Net benefit $18

    Explanation:

    Saivings from fees:

    $4 fee x 12 months = $ 48

    Interst 1,500 x 0.005 = $ 7.5

    Opportunity cost:

    1,500 x 0.025 = ($ 37.5)

    Net benefit: 18.00

    Fro mthe saving of fees and interest we should subtract the opprtunity cost, which represen the gain from putting the cash in the best interest alternative. This makes a more realistic approach than just the accounting gain.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Lucky Louie's bank requires a minimum balance at all times of $1500 in order to provide free checking services. The bank pays .5% per annum ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers