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.

Should you buy the note?

1)

FV Note

2)

PV Note

FV Bank

PV Bank