The main interest rate that the Federal Reserve tries to control is the Federal Funds rate, the
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a. If the annual interest rate on federal funds is 4%, what is the one-day interest rate on federal funds? (Interest rates, like GDP growth rates, are usually reported as “per year,” just as speeds are reported as miles “per hour.”)
b. How many dollars of interest will Virginia Community Bank earn for lending this money for one day?
c. If Virginia Community Bank lent this amount every day at the same rate for an entire year, how much interest would it earn?
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