I am not sure how to solve this problem. Could someone please help and explain the proper steps.
Annual interest of 2.5% paid if the balance exceeds $750, $8 monthly fee if the account falls below minimum balance $815, account falls below $750 during 4 months.
Sorry I was supposed to determine the annual net cost.
Sure, I can help you with that. To solve this problem, we need to calculate the total amount of interest earned and the total amount of fees incurred over the course of four months. Here are the steps:
1. Calculate the interest earned each month:
- Determine if the balance exceeds $750 for each month.
- If the balance is greater than $750, calculate the interest using the formula: Interest = (Balance * Annual Interest Rate) / 12.
- If the balance is less than or equal to $750, no interest is earned for that month.
2. Calculate the fees incurred each month:
- Determine if the balance falls below $815 for each month.
- If the balance is less than $815, a monthly fee of $8 is incurred.
- If the balance is greater than or equal to $815, no fee is incurred for that month.
3. Repeat steps 1 and 2 for each of the four months.
4. Sum up the total interest earned and the total fees incurred over the four months to get the overall result.
Let's work through an example to better understand the process:
Month 1: First, check if the balance falls below $750. If it does, no interest is earned. In this case, let's say the balance is $700, so no interest is earned. Also, check if the balance falls below $815. Since $700 is less than $815, a fee of $8 is incurred.
Month 2: Repeat the same steps for the second month. Let's say the balance is $800, so it exceeds $750. Calculate the interest earned using the formula: (800 * 0.025) / 12 = $1.66. Now, check if the balance falls below $815. Since $800 is above $815, no fee is incurred.
Continue this process for the remaining two months, making the necessary calculations for interest earned and fees incurred based on the balance for each month.
Finally, add up the total interest earned and the total fees incurred over the four months to get the result.