Suppose someone offered to sell you a note that calls for $1,000 payment three years from today. The person offers to sell the note for $850. You have $850 in a banks savings instrument that pays a 6.77% APR with daily compounding; and you plan to leave this money in the bank unless you buy the note. The note is not risky that is, you are sure it will be paid on schedule. Follow the steps below and explore should you buy the note?

A) by comparing your future value (FV) if you buy the note versus leaving your money in the bank (FV of the note is $1,000, compare this to the FV of leaving $850 in the bank for 3 years with daily interest compounding, should you buy the note?)

B) by compounding the present value (PV) of the note with your current bank (PV of the note is the $1,000 payout in 3 years assuming the same daily compounded interest as your bank is paying, and the PV of your bank investment is the $850, should you buy the note?

C) Based on parts a and b, do you buy the note or keep your money in the bank? Be sure to explain your answer for each part.

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