Question: Suppose you want to buy a car, you are allowed to pay the car in a series of payments over time. In particular, you make

Suppose you want to buy a car, you are allowed to pay the car in a series of payments over time. In particular, you make three payments: $10,000 today, $10,000 1 year from today, and $10,000 2 years from today. (show your calculations when you explain)

• At an interest rate of 5% per year, what is the present value of all your three payments (Hints: you need to sum up the present values of the three payments)?

• Suppose due to COVID, the car dealer offers you a cash discount which means that you can alternatively choose another plan where you only pay $ 28700 all at one time today. Are you going to accept the cash discount today or insist on making the three $10,000 payments? Why?

• Suppose the interest rate is lowered to 3%, are you going to pay $28700 today or making the three $10,000 payments? Why?

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