You are offered a note that pays $1,000 in 15 months (or 456 days) for...
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You are offered a note that pays $1,000 in 15 months (or 456 days) for $850. You have $850 in a bank that pays a 6.76649% nominal rate, with 365 daily compounding, which is a daily rate of 0.018538% and an EAR of 7.0%. You plan to leave the money in the bank if you dont buy the note. The note is riskless. Which investment should you choose? Use the following all three solution methods to verify your answer. 1. Greatest future wealth: FV 2. Greatest wealth today: PV 3. Highest effective rate of return. Explain which investment you would choose and why.
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