You have the chance to buy a guaranteed promissory note for $850. The note pays $1,000 in 15 months (i.e., exactly 456 days). You have $850 in a bank account that pays a 7% nominal rate compounded daily. Which is a better investment, the note or the bank account? Answer this question using three approaches: (1) compare your future value if you buy the note versus leaving your money in the bank; (2) compare the PV of the note with your current bank balance; and (3) compare the effective rate or return on the note with that of the bank account.
You have the chance to buy a guaranteed promissory note for $850. The note pays $1,000 in 15 months (i.e., exactly 456 days). You have $850 in a bank account that pays a 7% nominal rate compounded daily. Which is a better investment, the note or the bank account? Answer this question using three approaches: (1) compare your future value if you buy the note versus leaving your money in the bank; (2) compare the PV of the note with your current bank balance; and (3) compare the effective rate or return on the note with that of the bank account.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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You have the chance to buy a guaranteed promissory note for $850. The note pays $1,000 in 15 months (i.e., exactly 456 days). You have $850 in a bank account that pays a 7% nominal rate compounded daily. Which is a better investment, the note or the bank account? Answer this question using three approaches: (1) compare your
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