A university is offering two financing options to its degree course students which lasts exactly 3 years. For the first option, students are required to pay fees during the term of the course at the beginning of each month. The monthly fee is RM1000 for the first year and increase at the rate of by 5% per year. For the second option, students have to pay the university 3.5% of all their future earnings from work, with the payments made annually at the end of the year.

Jasmine wishes to attend the university. She expects to leave university at the end of the three-year course and immediately obtain employment. In addition, she expects that her earnings will rise by 3% per annum compound at the end of each year for 10 years and then she will take a five-year career break. After the career break, she expects to restart work on the salary she was earning when the career break started. Jasmine then expects to receive salary increases of 1.5% per annum compound at the end of each year until retiring 45 years after graduating.

Jasmine wishes to take the financing option with a lower present value at a rate of 3% annual interest rate.

(i) Calculate the present value of the payments due under the first option. (4 marks)

(ii) Calculate the initial level of salary that will lead the payments under the second option to have a lower present value if compared with the first option.

(5 marks) (iii) Comment on whether Jasmine should use the same interest rate to evaluate both

of the options.