Question

Answer these questions based on the information given below. A page from Giri's pass book is given below. He closed his account on \(2^{\text {nd }}\) July, 2007. Assume there were no transactions involving his account after May \(18^{\text {th }} 2007\). $$ \begin{array}{lllll} \hline \multicolumn{1}{c} {\text { Data }} & \multicolumn{1}{c} {\text { Particular }} & \text { Withdrawn } & \text { Deposited } & \multicolumn{1}{c} {\text { Balance }} \\ \hline \begin{array}{ll} \text { January } 2,07 \\ \text { January } 14,07 \end{array} & \text { B/F } & \- & \- & 4000 \\ \text { February } 14,07 & \text { By cash } & \- & 5000 & 9000 \\ \text { April 7, } 07 & \text { To self } & 3000 & & 6000 \\ \text { May } 8,07 & \text { By cash } & & 2000 & 8000 \\ \text { May } 18,07 & \text { To self } & 5500 & & 2500 \\ \hline \end{array} $$ Find the sum on which Giri got interest on closing his account (in Rs) over the period January' 07 to June '07 (in Rs). (1) 32500 (2) 33500 (3) 34500 (4) 35500

Short answer

As a teacher, you should clarify with the student if there are any errors in the problem statement or options provided. If the problem statement and options are accurate, the correct answer should be one of the options provided. If there are errors, you should work on correcting the problem and provide the right options to the student, taking into consideration the calculations done in the solution.

Step-by-step solution

Calculate Average Daily Balance for Each Month

For each month, calculate the average daily balance by multiplying the balance by the number of days spent at that balance. 1. January: 4000 * 31 = 124000 2. February: 9000 * 28 = 252000 3. March: 9000 * 31 = 279000 (since there were no transactions in March, the balance remains the same as in February) 4. April (1st to 6th): 9000 * 6 = 54000 5. April (7th to 30th): 6000 * 24 = 144000 6. May (1st to 7th): 6000 * 7 = 42000 7. May (8th to 17th): 8000 * 10 = 80000 8. May (18th to 31st): 2500 * 14 = 35000 9. June: 2500 * 30 = 75000

Calculate the Sum on Which Interest is Earned

Now, sum the average daily balances calculated for each month to find the total sum on which Giri got interest. Total sum = 124000 + 252000 + 279000 + 54000 + 144000 + 42000 + 80000 + 35000 + 75000 = 1060000

Choose the Correct Answer

Now, let's choose the correct answer from the given options. The Right option should be close to the calculated sum (1060000). (1) 32500 (2) 33500 (3) 34500 (4) 35500 None of the given options is correct, as the correct answer should be close to 1060000. So, there may be a mistake in the given options.

Key concepts

Understanding the Average Daily Balance

The average daily balance is a fundamental concept used by banks to calculate the interest on an account over a billing cycle. It represents the average amount of money that is in the account each day.

To calculate it, you need to know the account's balance at the end of each day. Then, multiply each daily balance by the number of days that balance was maintained. After this, you sum all these products and divide by the total number of days in the billing period.

• Track daily balances.
• Multiply each balance by the number of days it was maintained.
• Sum the resulting products.
• Divide by the total number of days in the period.

This method gives a more accurate view of the account's average balance, taking into account the fluctuations that occur with deposits and withdrawals. It's particularly important for students to comprehend this when analyzing bank records or managing their personal finances.

Bank Transaction Analysis

Analyzing bank transactions may seem daunting, yet it's vitally important for managing personal finances and understanding interest calculations. It involves scrutinizing the inflow and outflow of cash within a bank account over time.

To analyze transactions, start by reviewing the bank's records, typically presented in a statement or passbook. Look for deposits (inflows) and withdrawals (outflows) and note their impact on the account balance.

• Check dates for each transaction.
• Examine deposit and withdrawal amounts.
• Observe how each transaction affects the balance.

This close examination helps in identifying trends, preparing for future expenses, and understanding how the average daily balance is affected. For educational purposes, transaction analysis exercises help students become more financially literate and capable of managing real-world bank interactions.

Simple Interest Formula

Simple interest is a way of calculating the interest charge on a loan or the interest earned on an account. The formula to calculate simple interest is quite straightforward:

\[ \text{Simple Interest} = \text{Principal} \times \text{Rate} \times \text{Time} \]
Where the 'Principal' is the initial amount of money, the 'Rate' is the interest rate per period (usually expressed as a percentage), and 'Time' is the number of time periods for which the money is loaned or invested.

• 'Principal' refers to the initial sum of money.
• 'Rate' indicates the percentage of interest per period.
• 'Time' represents the duration the money is impacted.

Students must remember that simple interest does not compound, meaning that interest is not paid on interest already earned. This is a basic financial concept that is essential for understanding how loans or investments grow over time, and is particularly relevant in bank savings accounts calculations, just as it would apply in our passbook exercise.