First Republic Bank Makes Many Loans to Individuals by Discounting

question 13

Short Answer

First Republic Bank makes many loans to individuals by discounting the face value of the loan. The borrower gets the proceeds. For the two loans below, determine the amount of the discount, the proceeds, and the actual interest rate which is based on the proceeds rather than the face value. Use a 365-day year and compute actual rates to the nearest 1/100 of a percent.
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Definitions:

Associate

To connect or link in one's mind; to relate one idea or concept with another.

Drive Theories

A group of theories in psychology that suggest humans are motivated by biological drives to achieve certain needs such as hunger or thirst.

Incentive Theories

Psychological models which suggest behavior is motivated by a desire for rewards and avoidance of punishments.

External Stimuli

Elements in the environment that influence behavior or responses, such as light, noise, or temperature.