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Enterprise Bank currently requires customers with checking accounts to

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Enterprise Bank currently requires customers with checking accounts to  [#permalink]

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New post 20 Jun 2018, 04:42
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Enterprise Bank currently requires customers with checking accounts to maintain a minimum balance or pay a monthly fee. Enterprise plans to offer accounts with no monthly fee and no minimum-balance requirement; to cover their projected administrative costs of $3 per account per month they plan to charge $30 for overdrawing an account. Since each month on average slightly more than 10 percent of Enterprise's customers overdraw their accounts, bank officials predict the new accounts will generate a profit.

Which of the following, if true, most strongly supports the bank officials’ prediction?


A. Some of Enterprise Bank's current checking account customers are expected to switch to the new accounts once they are offered.

B. One third of Enterprise Bank's revenues are currently derived from monthly fees tied to checking accounts.

C. Many checking account customers who occasionally pay a fee for not maintaining a minimum balance in their account generally maintain a balance well above the minimum.

D. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to overdraw their checking accounts.

E. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to write checks for small amounts.


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Re: Enterprise Bank currently requires customers with checking accounts to  [#permalink]

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New post 20 Jun 2018, 05:12
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A. Some of Enterprise Bank's current checking account customers are expected to switch to the new accounts once they are offered. - irrelevant. Does not talk about overdrawing balance owing to revenue.

B. One third of Enterprise Bank's revenues are currently derived from monthly fees tied to checking accounts. - talks about monthly fees but not overdrawing balance. Irrelevant.

C. Many checking account customers who occasionally pay a fee for not maintaining a minimum balance in their account generally maintain a balance well above the minimum. - even if they maintain a balance above the minimum, we can't infer that they also overdraw money. A contender but a weak one. Keep this and move on.

D. Customers //whose checking accounts (do not) have a minimum-balance requirement// are //more likely than others to overdraw their checking accounts.// - strengthens the conclusion. If people whose account have no minimum balance requirements are more likely than others to oversee then, they will oversee money more number of times, thus paying $30 everytime. Thus, conclusion attend firm. Keep.

E. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to ((write checks for small amounts.)) - weakener.

Thus, between C and D, D stands out. D is thus, the best.

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Re: Enterprise Bank currently requires customers with checking accounts to  [#permalink]

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New post 20 Jun 2018, 23:01
IMO D.

If on an average more then 10% customers overdraw and the likelihood of customers who do not maintain minimum balance to overdraw is even higher, then the bank will surely make profits from these accounts.
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Re: Enterprise Bank currently requires customers with checking accounts to  [#permalink]

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New post 21 Jun 2018, 14:05
Checking Account- Condition : maintain minimum balance or pay monthly fee.
Account Maintenance Cost: $3

Plan: Offer account without above condition
Problem: How to recover maintenance cost.
Solution: Apply fee on overdrawing of money.
Premise: currently more than 10% customer overdraw from account, so probability of success of plan is high.

Only option D supports the plan and banker's prediction.
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Re: Enterprise Bank currently requires customers with checking accounts to  [#permalink]

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New post 21 Jun 2018, 16:40
Pre-think:
We need to strengthen BAnk official's prediction, which is new accounts will generate a profit. well this will happen if new account will generate revenue more than or equal to old account. This account is generating any money only when customers are overdrawing the funds. So bank officials are assuming that customers will keep overdrawing the funds and they will generate revenue. but if this is not true then this option will fall. So this assumption or something around it should be the answer.


Which of the following, if true, most strongly supports the bank officials’ prediction?

A. Some of Enterprise Bank's current checking account customers are expected to switch to the new accounts once they are offered. --- not affecting the conclusion.

B. One third of Enterprise Bank's revenues are currently derived from monthly fees tied to checking accounts. --- Cool sounds great but what about the rest. if you could not then you are at loss.

C. Many checking account customers who occasionally pay a fee for not maintaining a minimum balance in their account generally maintain a balance well above the minimum. ---- irrelevant

D. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to overdraw their checking accounts. --- On the lines of pre-thinking.

E. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to write checks for small amounts. --- irrelevant
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Re: Enterprise Bank currently requires customers with checking accounts to  [#permalink]

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New post 22 Jun 2018, 19:49
Bunuel wrote:
Enterprise Bank currently requires customers with checking accounts to maintain a minimum balance or pay a monthly fee. Enterprise plans to offer accounts with no monthly fee and no minimum-balance requirement; to cover their projected administrative costs of $3 per account per month they plan to charge $30 for overdrawing an account. Since each month on average slightly more than 10 percent of Enterprise's customers overdraw their accounts, bank officials predict the new accounts will generate a profit.

Argument: Checking accounts are required to maintain a minimum balance or pay a fee. Bank plans to launch new accounts - no balance requirement, no fee but 30$ fee if a customer overdraws. We need to show these new accounts will generate profits.

Which of the following, if true, most strongly supports the bank officials’ prediction?


A. Some of Enterprise Bank's current checking account customers are expected to switch to the new accounts once they are offered. Switching is not good enough for us. We are talking about profits here for which we require them to overdraw!

B. One third of Enterprise Bank's revenues are currently derived from monthly fees tied to checking accounts.Fact that does not deal with profits. Eliminate

C. Many checking account customers who occasionally pay a fee for not maintaining a minimum balance in their account generally maintain a balance well above the minimum.That means even if these customers make the switch to the new accounts, they are not likely to overdraw. Opposite of what we are looking for.

D. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to overdraw their checking accounts.So this is the segment of people who have been paying the monthly fee. Now the bank has offered them 'Hey, you need not pay anymore monthly fees'. So if this segment of people makes the switch to new accounts, it's $$$ for the bank as this segment of people has high chances of overdrawing.

E. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to write checks for small amounts.Does not talk about overdrawing or profits. Irrelevant.


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Re: Enterprise Bank currently requires customers with checking accounts to  [#permalink]

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New post 28 Jun 2018, 05:56
aragonn wrote:
Pre-think:
We need to strengthen BAnk official's prediction, which is new accounts will generate a profit. well this will happen if new account will generate revenue more than or equal to old account. This account is generating any money only when customers are overdrawing the funds. So bank officials are assuming that customers will keep overdrawing the funds and they will generate revenue. but if this is not true then this option will fall. So this assumption or something around it should be the answer.


Which of the following, if true, most strongly supports the bank officials’ prediction?

A. Some of Enterprise Bank's current checking account customers are expected to switch to the new accounts once they are offered. --- not affecting the conclusion.

B. One third of Enterprise Bank's revenues are currently derived from monthly fees tied to checking accounts. --- Cool sounds great but what about the rest. if you could not then you are at loss.

C. Many checking account customers who occasionally pay a fee for not maintaining a minimum balance in their account generally maintain a balance well above the minimum. ---- irrelevant

D. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to overdraw their checking accounts. --- On the lines of pre-thinking.

E. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to write checks for small amounts. --- irrelevant


Can you explain more about C and D? I am not able to decipher how D is better than C.
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Re: Enterprise Bank currently requires customers with checking accounts to  [#permalink]

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New post 29 Jun 2018, 04:36
Can someone explain this further. Why is it important that Customers whose checking accounts do not have a minimum-balance requirement are the ones who are more likely to overdraw their checking accounts?

How does it matter if any other customers (other than those who do not have a minimum-balance requirement) overdraw their checking accounts?
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Re: Enterprise Bank currently requires customers with checking accounts to  [#permalink]

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New post 29 Jun 2018, 09:03
To realize a profit,
SP> CP

Let the number of customers be n. Since $3 is required per account to maintain it,
CP = 3n

SP is $30 * (number of over drawing accounts)
SP = $30 * ( slightly more than 10% of n)
SP = slightly more than 3n

We,therefore, get SP>CP and hence a profit.

C doesn't talk about the number of overdrawn accounts. Only D does that.
--D--

However, I would like to know how is the number of accounts keeping a minimum amount linked to that of overdrawn accounts.
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Enterprise Bank currently requires customers with checking accounts to  [#permalink]

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New post 23 Jul 2018, 11:28
Enterprise Bank currently requires customers with checking accounts to maintain a minimum balance or pay a monthly fee. Enterprise plans to offer accounts with no monthly fee and no minimum-balance requirement; to cover their projected administrative costs of $3 per account per month they plan to charge $30 for overdrawing an account. Since each month on average slightly more than 10 percent of Enterprise's customers overdraw their accounts, bank officials predict the new accounts will generate a profit.

Which of the following, if true, most strongly supports the bank officials’ prediction?

A. Some of Enterprise Bank's current checking account customers are expected to switch to the new accounts once they are offered.

B. One third of Enterprise Bank's revenues are currently derived from monthly fees tied to checking accounts.

C. Many checking account customers who occasionally pay a fee for not maintaining a minimum balance in their account generally maintain a balance well above the minimum.

D. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to overdraw their checking accounts.

E. Customers whose checking accounts do not have a minimum-balance requirement are more likely than others to write checks for small amounts.


Analysis
BID (Boil It Down): $30 overdraft rev -> Profit (over $3 expenses)

Big 3 GMAT Assumptions:

    1. Success (The prediction is likely to be true/happen) - The overdraft fees WILL cover the admin expenses
    2. Relevance - N/A
    3. No Other Factors - N/A

The Goal: We need to find the option that helps to support the notion that the overdraft fees will be sufficient to cover the admin expenses. This will likely be done by ruling out a compelling reason why the plan wouldn’t work.

Formal Argument Analysis:
Conclusion: The new accounts, which require no minimum balance and have no monthly fee, will generate a profit.
Evidence: Slightly more than 10% of Enterprise’s customers overdraw their accounts, and they will be charged $30 when this happens. This will more than compensate for the $3/per account administrative costs.
Assumption: The people who choose the new, no-fee accounts will overdraw in sufficient numbers to raise enough money to offset the administrative costs.

Understanding the situation through a little Test It:
Let’s say we’re talking about 100 of the new free accounts

Expenses
$3 admin fee x 100 accounts: $300/month in admin expenses

Overdraft Fee Revenue
Number of overdraft accounts:
10% of 100 accounts = 10 accounts/month

Revenue:
10 accounts x $30 fee = $300/month in overdraft fee revenue

Choice D is correct, and is really compelling that the bank officials are correct. If it’s true that bank customers most likely to overdraw are those who open the new free accounts this tells us that there could be an even greater potential (beyond 10%) to generate the $30 overdraft fees thus helping to make these new free accounts profitable.

If that were true, check out our math above. If more than 10 accounts/month out of 100 overdraft, then the revenue is likely to exceed the $300/month in expenses.


Choice A only tells us that “some” customers will switch to the new account, but how many? In any case, this choice does not tell us whether the new accounts will be profitable.

Choice B only tells us about the older account type. This is not relevant to the discussion of the new account’s profitability.

Choice C is wholly irrelevant to the discussion of the new account type because it is not clear how the behavior of holders of the current type of checking accounts will compare to those who open the new type of checking accounts. This is a great example of one of the biggest opportunities on the GMAT. Remember that you will be greatly rewarded by the test-writers if you can detect when options shift away from the subject discussed in the conclusion.

Choice E doesn’t affect the argument in a definite way. If anything, the small checks imply that the accounts will NOT be overdrawn, which would weaken the argument, but of course the accounts could still be overdrawn.



The Big Picture

    1. Detecting shifts in subject: here we’re greatly rewarded by paying very careful attention to the whether an option is referring to the current account type, or the new type. The test-writers LOVE to see who’s paying attention. By knowing to look out for these subject shifts, you’ll come out with a bigger score.

    2. Investing some time to understand the prompt & situation - We never want to move into our option evaluation until we feel we’ve gained a confident understanding of the prompt. Because this question involves numbers and basic math, it’s helpful to get a sense of the numbers by Testing an easy to calculate scenario

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