Today, we will work with Rita, a bank manager, and watch how she uses a discount rate in the maine lobster direct coupon code course of her job.
History, meet Rita, she is the manager at Richie Bank.
For example, if Rita's great-grandmother was owed 1,500 in 1920 but would not be paid until 2015, that same 1,500 back then would not be able to purchase a new car now.
April 23 and May 2, 2018 (PDF).If you are promised money to be given to you at a future date, use the discount rate formula to determine how much that is worth right now.A new car cost about 1,400, laborers were paid.50 to work a full 8-hour day, a newspaper was 2 coach promo code january 2017 cents, and a movie ticket was 17 cents!October 11 and October 31, 2016 (PDF).Rita's great-grandmother started at Richie Bank back in 1920.See also the articles in the.If the money would not come in for two years, then the denominator would be squared (power of 2) and 1,000 in two years would only be worth 826.45 now.Based on the change in the value of money, there has to be a way to compute what future income is worth now.When that money runs out and the bank wants to make more loans, Rita makes a call to the Federal Reserve Bank to borrow more.The rate will determine how much money is available for more loans as a way to influence the amount of money in our economy and will impact the inflation rate.Rita's family has been in the banking industry for a long time so she knows a lot about how banks work.The discount rate charged for primary credit (the primary credit rate) is set above the usual level pizza delight coupon code of short-term market interest rates.As time passes, the value of money tends to decrease; therefore, the purchasing power of income at a time in the future is worth less right now.The Federal Reserve Banks offer three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate.February 13 through March 15, 2017 (PDF).Release: Federal Reserve Bulletin, units: Percent, Not Seasonally Adjusted, frequency: Not Applicable.
Source: Board of Governors of the Federal Reserve System (US).Want to learn more?Under the primary credit program, loans are extended for a very short term (usually overnight) to depository institutions in generally sound financial condition.Obviously prices have changed a lot over the course of time.Back then, prices were much different.1.01 times itself.0201 1,000 divided.0201 is 980.30.March 27 through May 3, 2017 (PDF).
There are actually different rates determined by the length of time that the money will be borrowed and the amount of risk taken.
Rita knows that her best source of money is what she is allowed to use from the bank customer's savings accounts.