Final answer:
To calculate the fair price of a financial instrument with daily payments, you need to use the present value formula in a financial calculator.
Step-by-step explanation:
To calculate the fair price of a financial instrument, we need to use the present value formula in a financial calculator. The formula for present value is PV = CF / (1 + r)^n, where PV is the present value, CF is the cash flow, r is the discount rate, and n is the number of periods.
In this case, the daily payment of $1850 for 29 years can be considered as a cash flow of $1850 every day for 29 years, which equals a total of 10,585 payments (365 days * 29 years = 10,585). The discount rate is 3.90% (converted to 0.039). Plugging in these values into the present value formula, we get:
PV = 1850 / (1 + 0.039)^10585
Using a financial calculator, we can calculate the fair price of the financial instrument by inputting the cash flow, discount rate, and number of periods, and solving for the present value.