2. Financing Katie's Education At age 19, Katie Hicks is in the middle of her second year of studies at a community college in Atlanta. She has done well in her course work; majoring in pre-business studies, she currently has a 3.75 grade point average. Katie lives at home and works part-time as a filing clerk for a nearby electronics distributor. Her parents can't afford to pay any of her tuition and college expenses, so she's virtually on her own as far as college goes. Katie plans to transfer to the University of Georgia next year. (She has already been accepted.) After talking with her counselor, Katie feels she won't be able to hold down a part-time job and still manage to complete her bachelor's degree program at UGA in 2 years. Knowing that on her 22nd birthday, she will receive approximately $35,000 from a trust fund left her by her grandmother; Katie has decided to borrow against the trust fund to support herself during the next 2 years. She estimates that she'll need $25,000 to cover tuition, room and board, books and supplies, travel, personal expenditures, and so on during that period. Unable to qualify for any special loan pro-grams, Katie has found two sources of single-payment loans, each requiring a security interest in the trust proceeds as collateral. The terms required by each potential lender are as follows: a. Georgia State Bank will lend $30,000 at 6 percent discount interest. The loan principal would be due at the end of 2 years. b. National Bank of Atlanta will lend $25,000 under a 2-year note. The note would carry a 5 percent simple interest rate and would also be due in a single payment at the end of 2 years. Critical Thinking Questions 1. How much would Katie (a) receive in initial loan proceeds and (b) be required to repay at maturity under the Georgia State Bank loan? 2. Compute (a) the finance charges and (b) the APR on the loan offered by Georgia State Bank. 3. Compute (a) the finance charges and (b) the APR on the loan offered by the National Bank of Atlanta. How big a loan payment would be due at the end of 2 years? 4. Compare your findings in Questions 2 and 3, and recommend one of the loans to Katie. Explain your recommendation. 5. What other recommendations might you offer Katie regarding disposition of the loan proceeds?