# A NOW account requires a minim

A NOW account requires a minimum balance of \$750 for interest to be earned at an annual rate of 4 percent. An account holder has maintained an average balance of \$500 for the first six months and \$1,000 for the remaining six months. The account holder writes an average of 60 checks per month and pays \$0.02 per check, although it costs the bank \$0.05 to clear a check.

a. What average return does the account holder earn on the account?

b. What is the average return if the bank lowers the minimum balance to \$400?

c. What is the average return if the bank pays interest only on the amount in excess of \$400? Assume that the minimum required balance is \$400.

d. How much should the bank increase its check fee to the account holder to ensure that the average interest it pays on this account is 5 percent? Assume that the minimum required balance is \$750.

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