Chapter 3 Banking Services Key
1. Aaron wants to know how much he needs to save each month in his savings account to have a certain amount
in the future. He should use the formula for present value of a periodic deposit investment.
2. Interest compounded semiannually is compounded four times a year.
3. To reconcile a check register means to match all the entries in the register with the statement received from
the bank and correct any discrepancies.
4. Maxine deposited $1,000 into an account that pays 4.5% interest, compounded daily. At the end of six
months, she has earned $12 in interest.
5. The Federal Deposit Insurance Corporation insures bank accounts up to a particular amount. This means that
if the bank fails, the money is guaranteed by the government.
6. Compound interest earns more than simple interest at the same interest rate because compounding pays
interest on the interest earned.
7. Annual percent yield is higher than the annual percentage rate because APY takes into account the additional
interest earned by compounding.
8. James and Terry open a savings account that has a 2.75% annual interest rate, compounded monthly. They
deposit $500 into the account each month. How much will be in the account after 20 years?
9. Margarite wants to take a trip to Japan in 8 years. She knows she will need about $4,200. How much should
she deposit into an account now that pays 3.5% interest compounded daily, in order to meet her goal? Round to
the nearest dollar.
10. Tamika opened a money market account that has a 4.25% annual interest rate, compounded annually. She
deposits $1,750 into the account each year. How much interest will the account earn after 15 years?
11. Jackson deposited $5,000 at 3.8% interest, compounded continuously, when he was 18 years old. How
12. Loretta deposits $350 every quarter into a savings account that earns 4.5% interest compounded quarterly.
What is the balance after 7 years?
13. Bob and Kathy want to save a total of $500,000 for retirement. How much should they deposit monthly into
an account that pays 3.9% interest, compounded monthly, to meet their goal in 24 years?
14. How much more would $1,000 earn in 5 years in an account compounded continuously than an account
compounded quarterly if the interest rate on both accounts is $3.7%?
15. LaToya has $113.94 in her checking account. During the week she goes to an ATM and withdraws $40. She
is charged a usage fee of $2.50. The following week she deposits her paycheck of $189.73. She writes two
checks, one for $22.50 and the other for $70.18. What is the current balance in her checking account?
16. Conrad Savings Bank has a $50 overdraft fee. On Friday, Mr. McQuire deposited his paycheck of $468.92
for a total account balance of $712.34. The next morning, his wife wrote a check for $1,267.45 for a new
refrigerator and stove. The check cleared the bank by the end of the day. What is the current balance in the
McQuire’s account?
17. Erin has a balance of $1,150.34 in her check register. On her statement, the balance of her account is
$844.93. Not reported on the bank statement are deposits of $125.56, $50, and $212.34. There are outstanding
checks in the amount of $15 and $78.25 and an ATM withdrawal of $40. After Erin reconciles her check
register with her statement, what entry does she need to make in her register?
18. Malcolm wants to make a deposit into an account that earns interest. He wants to be able to access the
money on a limited basis. What type of account should he NOT consider?
19. What does the variable n represent in the formula below?
20. Amy opened a savings account with $1,750 she received for graduation. The account pays 4.3% simple
interest. What is the balance after 6 months?
21. What is the interest earned on $20,000 for five years, at an interest rate of 3 % compounded continuously?
22. Tammy sold a diamond ring for $10,000. She placed half of the money into a CD with a 3.9% interest rate
compounded daily. She placed the other half into a CD with the same interest rate which is compounded
monthly. What is the difference in the interest earned on each amount after 4 years?
23. Houng deposits $2,000 into an account that earns 4.2% interest compounded daily. What is the annual
percentage yield (APY) to the nearest hundredth of a percent?
24. Tyrone opens an account at the local bank by depositing $50 of his birthday money. He continues to deposit
$50 each month for 5 years. If the account pays 3 % interest compounded monthly, how much is in the account
25. Carmencita is 12 years old and she is saving for a car. She wants to have $5,000 by the time she is 16 years
old. She opens a savings account with an APR of 3.9% compounded weekly. How much should she deposit into
her account each week to meet her goal?
26. Sonja and Jake just got married. They received $4,500 in gift money and deposited it into a savings account
that pays 2.85% simple interest. How much will they have in savings after 3 years?
27. Ashley and Dwayne are saving for retirement. Their goal is to have $250,000 in 15 years. They open up an
account with an APR of 3.7% compounded monthly. How much should they deposit each month to meet their
goal?
28. Edward wants to have $50,000 in 10 years for college. What single deposit would he need to make now into
an account that pays 4.3% interest, compounded daily, to meet his goal?
29. Ron and Annie have $1,239.45 in their checking account. During the week Annie goes to an ATM and
withdraws $80. The following week Ron deposits his paycheck of $689.65. Annie then pays bills online in the
amounts of: $212.80, $55, $49.76, and $110.35. What is the current balance in their checking account?
30. The Parsons have a balance of $3,664.47 in their check register. On their bank statement, the balance on the
account is $2,346.89. Not reported on the bank statement are checks of $324.56, $25.50, $78.92, and $30.25.
There are outstanding deposits in the amount of $500 and $1,456.81. There are three ATM withdrawals of $60
each. What do the Parsons need to do to reconcile their checkbook?