You can buy a car that is advertised for $14,400 on the following terms: (a) pay $14,400 and receive a $2,400 rebate from the manufacturer; (b) pay $400 a month for 3 years.

(1) Calculate the present value of the payments for option (a) if the interest rate is .75% per month.

(2) Calculate the present value of the payments for option (b) if the interest rate is .75% per month.

(3) Which is the better deal?

a.

(1) $12,000; (2) $12,579; (3) Option b is better so it has the highest present value

b.

(1) $12,000; (2) $12,579; (3) Option a is better so it has the lowest present value

c.

(1) $11,578; (2) $11,639; (3) Option a is better so it has the lowest present value

d.

(1) $11,578; (2) $11,639; (3) Option b is better so it has the lowest present value