You are purchasing a new TV at Visions Electronics and the salesperson is trying to convince you to buy a five-year extended warranty. The cost of the warranty to you today will be $399. However, if there is no claim against the warranty, you will get a store credit for $399 to spend five years from now. Assume you won’t have any problems with your TV and you plan on buying more electronics at Visions in five years (so you would be certain to use the store credit). Also assume the interest rate is 6% per year.

a. What is the value to you today of the promised store credit?

b. Given your answer to (a), what is the net cost of the extended warranty?