Reference no: EM132527593

1. Suppose someone offered to sell you a commercial note (like a corporate bond, this is a short term obligation or loan) that calls for a single $3,750 payment, five years from today. The person offers to sell the note for $3000. You have $3,000 in a bank time deposit (savings account) that pays a 4.75% 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. 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 $3750, compare this to the FV of leaving $3,000 in the bank for 5 years with daily interest compounding)

(b) by comparing the present value (PV) of the note with your current bank investment (by taking the PV of the note and using your bank's interest rate, you are determining how much money you would need to deposit in the bank today in order to earn that same $3750. Is it more than $3000 or less?