Question

A company opening a new bank account wants to determine if the 7.0% earnings credit rate (ECR) offered will be sufficient to offset the bank's monthly service charges. In addition to the service charges, there is a 10% Federal Reserve requirement. In May, the bank charged $950 in fees. The company had an average of $500,000 on ledger balance and an average of $75,000 in deposit float.

What is the total excess earnings credit (service charges due), including service charges?

Note: Round all dollar amounts to whole dollars, and round all other intermediate calculations to four decimal places.

Total excess earnings credit (service charges due) =

1. $950
2. $1,224
3. $1,324
4. $2,274

A company wants to determine the required collected balance needed to offset the 10% Federal Reserve requirement and the bank's service charges of $12,000 per month. Their earnings credit rate (ECR) is 5.00%.

For the month of November, what are the collected balances required?

Note: Round all intermediate calculations to four decimal places, and round the final answer to whole dollars.

1. $240,000
2. $2,920,000
3. $3,139,785
4. $3,243,243

Answer 1

Particulars	Amount	Calculations
Average Ledger Balance	$        500,000
Less : Average deposit float	$          75,000
Average collected balance	$        425,000
Less : Reserve requirement (10%)	$          42,500
Balance available for services	$        382,500
Earnings Credit Rate	7.00%
Earnings Credit	$            2,274	$382,500 * 7% * 31/365
Less : Service Charges	$                950
Excess earnings credit	$            1,324

Option C.

Particulars	Amount	Calculations
Earnings Credit Required	$              12,000
Earnings Credit Rate	5.00%
Balance available for services Required	$        2,920,000	$12000/ 5*100 *365/ 30
Add : Reserve requirement (10%)	$            324,444	$2,920,000 * 10 / 90
Average collected balance	$        3,244,444