Capital Budget

Question 1
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