1.Ford offers a three-year or 36,000-mile warranty on the explorer car. Consumers must pay for extended warranties beyond the manufacturer's warranty period. The Auto Club offers an extending warranty for a Ford Explorer in Honover. New Hampshire, at a price of $1,259. This would cover years 4 and 5, after the expiry of manufacturer's warranty.

a)Explain the role of discounting in your decision whether or not to purchase the extended warranty.

b)Suppose that the expected cost of repair is $800 in each of years 4 and 5. If your discount rate is 6% per year, should you purchase the extended warranty?

c)Would your decision be different if your discount rate we're 1% per year