A bank estimates that their average balance on demand deposit accounts is $2,000, net of float. Each account costs the bank $150 per year in processing costs. The bank collects an average of $7.50 per month on each account in service charges. Assume reserve requirements are 10%.
What is the net cost of an average demand deposit?
If the bank can invest the deposit balance (after adjusting for reserve requirements) at 5%, what is the break-even deposit balance?