Suppose someone offered to sell you a note calling for the payment of $1,000 in 15...

Suppose someone offered to sell you a note calling for the payment of $1,000 in 15 months (or 456 days). They offer to sell it to you for $850. You have $850 in a bank time deposit that pays a 6.76649% rate with daily compounding, and you plan to leave the money in the bank unless you buy the note. The note is not risky and you are sure it will be paid on schedule. Should you buy the note? Check the decision two ways: (1) by comparing your future value if you buy the note versus leaving your money in the bank and (2) by comparing the PV of the note with your current bank account.

FV Note = ____

FV Bank = _____

PV Note = ____

PV Bank = ____

Should I buy this note?

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 3 weeks ago

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