Question: 2 A typical bank’s sources of funds include savings deposits, certificates of deposit (CDs), and checking (demand) deposits.

(A) Obtain the current interest rates on savings and checking accounts and from a local bank. (checking 2.5% and savings 2.75%). Suppose that the bank incurs an additional 1% cost to administer checking accounts. There are no additional administrative costs for savings accounts and CDs. List the three sources of funds in ascending order of annual cost per dollar funds.

(B) Suppose that the bank has equal amounts of savings and checking deposits and CDs. Compare the average costs of funds with its marginal cost of funds.