Looking for future value, present value and EAR

profileM1florida

Suppose someone offered to see you a note calling for the payment of $1,200 in three years.  They offer to sell it to your for $880.  You have $880 deposit in the bank that pays a 9.5% nominal rate with daily compounding, and you plan to leave the money in the bank unless you buy the note.  The note is not risky-you are sure it will be paid on schedule.  Should you buy the note? Check the decision in three ways:  1-comparing your future value if you buy the note versus leaving your money in the bank, 2- by comparing the present value of the note with your current bank account, and 3- by comparing the effective annual rate on the note versus that of the bank account



    • 9 years ago
    • 10
    Answer(0)