A bank that provides overdraft protection charges 7 percent for each $100 (or portion of $100) borrowed when an overdraft occurs.

a. What amount of interest would the customer pay for an overdraft of $240?

Interest = ( 100 + 100 + 100) × 0.07 = $21

The answer reflects 3 increments of $100

Explanation:

Overdraft which is essentially the extension of credit from a bank when an account balance reaches zero. The credit extension allows the accountholder to continue withdrawing money from the account, despite its zero balance.

The customer would pay $14 for the overdraft

Explanation:

The overdraft interest can be calculated by considering the interest on the automatic loan which would be triggered by the overdraft.

Given

Overdraft protection charges = 7 % = 0.07

Overdraft = $240

The automatic loan is the sum on the loan and also the sum triggered by overdraft.

Automatic loan = $100 + $100 = $200

Overdraft interest = 0.07 x $200

                             = $14

Therefore the customer would pay $14 for the overdraft

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