One of your friends, Bonnie, is considering buying a home cinema sound system, which costs $38,000. She does not have enough savings today and hence she is considering the following two options:

Option 1. Borrows $38,000 from a credit union today and repays the loan in 12-month installments. The credit union charges a monthly flat rate of 0.5 percent and uses the rule of 78s method to calculate interest payments

Option 2. Instead of borrowing a loan, Bonnie will make 6 fixed monthly deposits to a savings account, which promises to pay an APR of 12 percent interest, and then will use this savings to buy the sound system after 6 months. Assume the price of the sound system after 6 months is still $38,000 and the monthly deposits are made at the end of each month.

(b) Is the installment loan in Option 1 an open-end credit or a closed-end credit? Explain briefly. (3 marks)

(c) Referring to Option 2, calculate the amount of monthly deposit that Bonnie should make, in order to accumulate enough funds to buy the sound system after 6 months. (4 marks)