Web Application Chapter 8 page 306

On December 23, 1913, the Federal Reserve System, which serves as the nation's central bank, was created by an Act of Congress. The System consists of a seven-member Board of Governors with headquarters in Washington, D.C. and twelve Federal Reserve Banks located in major cities throughout the United States. Searching www.bog.frb.fed.us/otherfrb.htm, answer the following questions:

1. Where is the Federal Reserve Bank nearest to you.

2. The Federal Reserve Bank uses exact interest, interest based on 365 days. From the description of the Federal Reserve Bank found at www.bog.frb.fed.us/pubs/frseries/frseri3.htm under Organization of the Banks, discuss one reason why exact interest is used. Knowing the difference between ordinary and exact interest and who benefits from the type of interest method used will be helpful.

3. Locate a bank in your area by going to www.ffiec.gov/nic/ and clicking on Search by State or MSA, which is located under the heading Institution Search. Consider the following scenario: Peter van Vliet goes to the bank you selected and borrows $15,000, at 9 1/2 % (Steph-is this number supposed to be "9.5%"?), for 250 days. The bank uses the exact interest method. How much interest will Peter have to pay? Set the problem up according to example 5 on page 306 of your textbook.

4. If Alexis van Vliet goes to a credit union, which uses the ordinary interest method, and borrows the same amount at the same interest rate and for the same amount of time as Peter, how much interest will Alexis have to pay?

5. Does the difference in the interest paid between Peter and Alexis validate your answer to question number 2?

Show your work and include the date of the information used in your answer.

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