Activity 09

A bank determines from an analysis on its deposits that account processing and other operating expenses
cost the bank $3.95 per month. It has also determined that its non operating expenses on its
deposits are $1.35 per month. The bank wants to have a profit margin which is 10 percent of
monthly costs. What monthly fee should this bank charge on its deposit accounts?
A) $5.30 per month
B) $3.95 per month
C) $5.83 per month
D) $5.70 per month
E) None of the above
Answer: C

A bank determines from an analysis on its deposits that account processing and other operating expenses
cost the bank $4.45 per month. The bank has also determined that nonoperating expenses on
deposits are $1.15 per month. It has also decided that it wants a profit of $.45 on its deposits.
What monthly fee should this bank charge on its deposit accounts?
A) $6.05
B) $5.60
C) $5.15
D) $4.45
E) None of the above
Answer: A

A customer has a savings deposit for 45 days. During that time they earn $5 in interest and have an
average daily balance of $1000. What is the annual percentage yield on this savings account?
A) 0.5%
B) 4.13%
C) 4.07%
D) 4.5%
E) None of the above
Answer: B

A customer has a savings account for one year. During that year they earn $65.50 in interest. For 180
days they have $2000 in the account for the other 180 days they have $1000 in the account. What
is the annual percentage yield on this savings account.
A) 6.55%
B) 3.28%
C) 4.37%
D) 8.73%
E) None of the above
Answer: C
If you deposit $1,000 into a certificate of deposit that quotes you a 5.5% APY, how much will you have at
the end of 1 year?
A) $1,050.00
B) $1,055.00
C) $1,550.00
D) $1,005.50
E) None of the above.
Answer: B

A bank quotes an APY of 8%. A small business that has an account with this bank had $2,500 in their
account for half the year and $5,000 in their account for the other half of the year. How much in
total interest earnings did this bank make during the year?
A) $300
B) $200
C) $400
D) $150
E) None of the above
Answer: A

Conditional deposit pricing may involve all of the following factors except:
A) The level of interest rates
B) The number of transactions passing through the account
C) The average balance in the account
D) The maturity of the account
E) All of the above are used
Answer: A

Customers who wish to set aside money in anticipation of future expenditures or financial emergencies
put their money in
A) Drafts
B) Second-party payment accounts
C) Thrift Deposits
D) Transaction accounts
E) None of the above
Answer: C

A savings account evidenced only by computer entry for which the customer gets a monthly printout is
called:
A) Passbook savings account
B) Statement savings plan
C) Negotiable order of withdrawal
D) Money market mutual fund
E) None of the above
Answer: B

A traditional savings account where evidenced by the entries recorded in a booklet kept by the customer
is called:
A) Passbook savings account
B) Statement savings plan
C) Negotiable order of withdrawal
 D) Money market mutual fund
E) None of the above
Answer: A

An account at a bank that carries a fixed maturity date with a fixed interest rate and which often carries a
penalty for early withdrawal of money is called:
A) Demand deposit
B) Transaction deposit
C) Time deposit
D) Money market mutual deposit
E) None of the above
Answer: C

A time deposit that has a denominations greater than $100,000 and are generally for wealthy individuals
and corporations is known as a:
A) Negotiable CD
B) Bump-up CD
C) Step-up CD
D) Liquid CD
E) None of the above
Answer: A

A time deposit that is non-negotiable but where the promised interest rate can rise with market interest
rates is called a:
A) Negotiable CD
B) Bump-up CD
C) Step-up CD
D) Liquid CD
E) None of the above
Answer: B

A time deposit that allows for a periodic upward adjustment to the promised rate is called a:
A) Negotiable CD
B) Bump-up CD
C) Step-up CD
D) Liquid CD
E) None of the above
Answer: C

A time deposit that allows the depositor to withdraw some of his or her funds without a withdrawal
penalty is called a:
A) Negotiable CD
B) Bump-up CD
C) Step-up CD
D) Liquid CD
E) None of the above
Answer: D
The dominant holder of bank deposits in the U.S. is:
A) The private sector
B) State and local governments
C) Foreign governments
D) Deposits of other banks
E) None of the above
Answer: A

The deposit pricing method absent of any monthly account maintenance fee or per-transaction fee is
called:
A) Free pricing
B) Conditionally free pricing
C) Flat-rate pricing
D) Marginal cost pricing
E) Nonprice competition
Answer: A

The deposit pricing method that charges a fixed charge per check or per period or both is called:
A) Free pricing
B) Conditionally free pricing
C) Flat-rate pricing
D) Marginal cost pricing
E) Nonprice competition
Answer: C

The deposit pricing method that focuses on the added cost of bringing in new funds is called:
A) Free pricing
B) Conditionally free pricing
C) Flat-rate pricing
D) Marginal cost pricing
E) Nonprice competition
Answer: D

Prior to Depository Institution Deregulation and Control Act (DIDMCA), banks used . This
tended to distort the allocation of scarce resources.
A) Free pricing
B) Conditionally free pricing
C) Flat-rate pricing
D) Marginal cost pricing
E) Nonprice competition
Answer: E

A customer has a savings deposit for 60 days. During that time they earn $11 and have an average daily
balance of $1500. What is the annual percentage yield on this savings account?
A) .73%
B) 4.3%
C) 4.5%
D) 4.7%
E) None of the above
 Answer: C

A customer has a savings deposit for 15 days. During that time they earn $15 and have an average daily
balance of $2200. What is the annual percentage yield on this savings account?
A) .68%
B) 16.36%
C) 16.59%
D) 17.98%
E) None of the above
Answer: D

A bank determines from an analysis on its deposits that account processing and other operating expenses
cost the bank $4.15 per month. It has also determined that its none operating expenses on its deposits are
$1.65 per month. The bank wants to have a profit margin which is 10 percent of monthly costs. What
monthly fee should this bank charge on its deposit accounts?
A) $6.38 per month
B) $5.80 per month
C) $4.57 per month
D) $4.15 per month
E) None of the above
Answer: A

A bank has $200 in checking deposits. Interest and noninterest costs on these accounts are 4%. This
bank has $400 in savings and time deposits with interest and noninterest costs of 8%. This bank has $200
in equity capital with a cost of 24%. This bank as estimated that reserve requirements, deposit insurance
fees and uncollected balances reduce the amount of money available on checking deposits by 10% and on
savings and time deposits by 5%. What is this bank’s before-tax cost of funds?
A) 11.00%
B) 11.32%
C) 11.50%
D) 12.00%
E) None of the above
Answer: B

Answer: C

A bank expects to raise $30 million in new money if it pays a deposit rate of 7%. It can raise $60 million
in new money if it pays a deposit rate of 7.5%. It can raise $80 million in new money if it pays a deposit
rate of 8% and it can raise $100 million in new money if it pays a deposit rate of 8.5%. This bank expects
to earn 9% on all money that it receives in new deposits. What deposit rate should the bank offer on its
deposits, if they use the marginal cost method of determining deposit rates?
A) 7%
B) 7.5%
C) 8%
 D) 8.5%
E) None of the above
Answer: B

A bank expects to raise $30 million in new money if it pays a deposit rate of 7%. It can raise $60 million
in new money if it pays a deposit rate of 7.5%. It can raise $80 million in new money if it pays a deposit
rate of 8% and it can raise $100 million in new money if it pays a deposit rate of 8.5%. This bank expects
to earn 9% on all money that it receives in new deposits. What is the marginal cost of deposits if the bank
raises their deposit rate from 7 to 7.5%?
A) .5%
B) 7.5%
C) 8.0%
D) 9.5%
E) 10.5%
Answer: C

Under the Truth in Savings Act, a bank must inform its customers of the terms being quoted on their
deposits. Which of the following is not one of the terms listed?
A) Loan rate information
B) Balance computation method
C) Early withdrawal penalty
D) Transaction limitations
E) Minimum balance requirements
Answer: A