Solo Savings Bank received an initial deposit of $6000. It kept a percentage of this money in reserve based on the reserve rate and loaned out the rest. The amount it loaned out was eventually all deposited back into the bank. If this cycle continued indefinitely and eventually the $6000 turned into $200,000, what was the reserve rate?

Accepted Solution

ANSWER: Reserve rate = 1.03%Step by step explanation:Initial amount = $6000Total sum = $2,00,000A G.P(geometric progresssion) series is formed with initial value = 6000Since the depositing cycle continues infinitely, therefore the sum of G.P formula will be taken for infinite valuesS= a\1-r where s= 2,00,000 (sum)a=6000  (initial amount)r= ratio (reserve rate)2,00,000=   6000\1-rr = 1.03 %