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Question
A bank estimates that their average balance on demand deposit accounts is $2,500, net of float. Each account costs the bank $175 per year in processing costs. The bank collects an average of $5 per month on each account in service charges. Assume reserve requirements are 10%.If the bank can invest the deposit balance (after adjusting for reserve requirements) at 7%, what is the break-even deposit balance?
a. $3,777
b. $3,500
c. $2,500
d. $1,825
e. $1,479
Answer
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