Question

A UCF graduate has 3 bank overdrafts per year, and the bank charges $35 per overdraft. The bank pays the graduate 1% interest per annum, and he/she maintains an average monthly balance of $600. What is the graduate's net annual cost of maintaining the checking account after giving effect to the interest earned (ignore taxes)?

Answer 1

Answer:

$33

Step-by-step explanation:

First we calculate the cost of the overdrafts:

3 overdrafts * $35 = $105

Then, if he maintains an average monthly balance of $600, we can calculate = $600*12 months = $7200 (average yearly balance). And the bank pays him 1% interest per annum:

$7200 * 1% = $72 (this is what the bank pays the graduate per year)

So if the bank charges him $105 and pays him $72, then the net annual cost is = $105-$72= $33