Assume that the amount of money deposited in a bank is proportional to the square of the interest rate the bank pays on the money. Furthermore, the bank can reinvest the money at 21% simple interest. Find the interest rate the bank should pay to maximize its profit.

Assume that the amount of money deposited in a bank is proportional to the square of the interest rate the bank pays on the money. Furthermore, the bank can reinvest the money at 21% simple interest. Find the interest rate the bank should pay to maximize its profit.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

Section: Chapter Questions

Problem 39P: How much money do you have to put into a bank account that pays 10% interest compounded annually to...

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Assume that the amount of money deposited in a bank is proportional to the square of the interest rate the bank pays on the money. Furthermore, the bank can reinvest the
money at 21% simple interest. Find the interest rate the bank should pay to maximize its profit.
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