You have $6,500 to deposit. If you deposit the money in a savings account at your local bank, you will earn 1.45% annual interes
t and will be able to make ATM withdrawals at your bank's ATMs. If you deposit the money in an online savings account, you will earn 2.25% interest, but you will be charged $4 every time you make an ATM withdrawal. Assuming that your ATM withdrawals do not reduce the amount of interest you earn, how many ATM withdrawals must you make in a year for the local savings account to be a better deal than the online savings account? a.
5
b.
12
c.
14
d.
10
The amount earned from the local account must be greater than that of the online account. Amount from local account = 6,500(1.0145)ⁿ Amount from online account = 6,500(1.0225)ⁿ - 4x Where n is the number of years and x is the number of ATM withdrawals.
6,500(1.0145)ⁿ > 6,500(1.0225)ⁿ - 4x 4x > 6,500[(1.0225)ⁿ - (1.0145)ⁿ]; n = 1 x > 13 The number of withdrawals must exceed 13.
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