# Capital Budget

If I buy the T-note, FV=$1000

If I leave the money in the bank,

FV=PV(1+Inom/M)MN+$10=900（1+5%/365)270+$10=$943.91

$1000>$943.91, so the greatest future wealth is $1000

If I buy the T-note， PV=FV/(1+Inom/M)MN=1000/(1+5%/365)270=$963.95 If I don’t buy it, PV is $910.

$963.69>$910, the greatest wealth today is $963.69

Leaving the money in the bank, the effective rate of return is: EFF=(1+Inom/M)M-1=（1+5%/365)365-1=5.13%

For the T-note 1000=910(1+I)270, I=0.034936%,

EFF=(1+Inom/M)M-1=(1+0.034936%)365-1=13.60%

The greatest effective rate of return is 13.60% per month

From the three solution methods above, I should invest in the T-note.

Question 2

Down payment is $35000

Monthly payment is $1600

Monthly rate= 4.49%/12=0.3742%

Using the financial calculator, N=360, I=0.3742%, PMT=1600, FV=0. PV=$316,133.6481 PVtotal=$35000+$316,133.6481=$351,133.6481

The maximum price of the house I can afford is $351,133.65

Face value

Coupon payment

Discount rate

Annuity(PMT) +Face value(PV)=BOND PRICE

FV=FINAL PAYMENT

PMT=coupon payment each compounding period

N=compounding period

I/Y=period compounding rate

PV=FACE VALUE(MARKET VALUE) PRESENT VALUE OF THE BOND

discount bond PB

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