Answer :
To determine the annual opportunity cost of maintaining a minimum balance in a checking account, follow these steps:
1. Identify the minimum balance required to avoid service charges. In this case, it is \$300.
2. Determine the interest rate that could be earned on this balance if it were invested elsewhere. Here, the interest rate is 3 percent.
3. To find the annual opportunity cost, calculate the interest that would be earned on the minimum balance if it were invested. This is done by multiplying the minimum balance by the interest rate.
Mathematically, it can be represented as:
[tex]\[ \text{Opportunity Cost} = \text{Minimum Balance} \times \text{Interest Rate} \][/tex]
4. Plug in the given values:
[tex]\[ \text{Opportunity Cost} = \$300 \times 0.03 \][/tex]
5. Perform the multiplication:
[tex]\[ \text{Opportunity Cost} = \$9 \][/tex]
Thus, the annual opportunity cost of maintaining a \[tex]$300 minimum balance at a 3 percent interest rate is \$[/tex]9.
Therefore, the correct answer is [tex]\( \$ 9 \)[/tex].
1. Identify the minimum balance required to avoid service charges. In this case, it is \$300.
2. Determine the interest rate that could be earned on this balance if it were invested elsewhere. Here, the interest rate is 3 percent.
3. To find the annual opportunity cost, calculate the interest that would be earned on the minimum balance if it were invested. This is done by multiplying the minimum balance by the interest rate.
Mathematically, it can be represented as:
[tex]\[ \text{Opportunity Cost} = \text{Minimum Balance} \times \text{Interest Rate} \][/tex]
4. Plug in the given values:
[tex]\[ \text{Opportunity Cost} = \$300 \times 0.03 \][/tex]
5. Perform the multiplication:
[tex]\[ \text{Opportunity Cost} = \$9 \][/tex]
Thus, the annual opportunity cost of maintaining a \[tex]$300 minimum balance at a 3 percent interest rate is \$[/tex]9.
Therefore, the correct answer is [tex]\( \$ 9 \)[/tex].
