Question

7. ABC Bank offers a checking account with a minimum balance of $1,200, and 1.4% interest on any

amount over $1,200. Best Bank, on the other hand, pays 1.08% on the entire balance as long as the
account never dips below $1,200.
a. If you maintain a balance of $2,000, how much interest do you earn at Acme Bank, and how
much at Best Bank?
b. If you maintain a balance of $10,000, how much interest do you earn at Acme Bank, and how
much at Best Bank?

Answer 1

a. At ABC Bank, with a balance of $2,000, the amount over $1,200 that earns interest is $2,000 - $1,200 = $800. The interest earned at ABC Bank is 1.4% of $800, which is 0.014 * $800 = $11.20.

At Best Bank, with a balance of $2,000, the entire balance earns interest at 1.08%. So, the interest earned at Best Bank is 1.08% of $2,000, which is 0.0108 * $2,000 = $21.60.

b. At ABC Bank, with a balance of $10,000, the amount over $1,200 that earns interest is $10,000 - $1,200 = $8,800. The interest earned at ABC Bank is 1.4% of $8,800, which is 0.014 * $8,800 = $123.20.

At Best Bank, with a balance of $10,000, the entire balance earns interest at 1.08%. So, the interest earned at Best Bank is 1.08% of $10,000, which is 0.0108 * $10,000 = $108.00.