Assume that you are nearing graduation and that you have applied for a job at a local bank. As part of the banks evaluation (interview) process, you have been asked to take an assignment that covers several financial analysis techniques. The hiring decision depends on how you would answer the following questions:

Part I: TVM Analysis. The first section of the test addresses time value of money analysis. John and Mary are a young couple, who want to put their finance in order. Both the husband and the wife are 27 years ago and in stable employment. They want to manage their savings and earning to achieve a better return and reduce the risks. You want to help them in their financial planning by answering a series of questions as follows:

Suppose someone offered to sell you a note that calls for a $1,000 payment 15 months from today. The person offers to sell the note for $850. You have $850 in a bank time deposit (savings instrument) that pays a 6.76649 percent simple rate with daily compounding, which is a 7 percent effective annual interest rate; and you plan to leave this money in the bank unless you buy the note. The note is not riskythat is, you are sure it will be paid on schedule. Should you buy the note? Check the decision in both ways: (1) by comparing your future value if you buy the note versus leaving your money in the bank, (2) by comparing the PV of the note with your current bank investment.