A financial institution only pays the interest rate of 5% if the account balance is equal to or above 750 AUD. Moreover, the financial institution offers a check service. For each check the financial institution charges 5 cents fee. However, the internal cost for processing a check is equal to 10 cents.
Investor A uses 50 checks a year and has the following account balance:
3 months 250 AUD 3 months 500 AUD 6 months 1000 AUD
a) Calculate the total explicit interest paid (in AUD).
b) Calculate the total implicit interest paid (in AUD).
c) Calculate the total interest rate (explicit + implicit) (in %).
d) Name two different ways on how to increase the explicit interest paid. Name one way on how to increase the implicit interest paid.
e) How much does the financial institution have to charge for the check processing, such that the implicit interest is zero?