Suppose that you are offered the choice of buying a car for $15,000 or for a yearly payment for 3 years, with the first payment due today and the next due in one and two years.
a. If your personal discount rate is 3%, what is the highest yearly payment you would be willing to make for the car?
b. If your personal discount rate rose to 4%, would this number rise or fall? Explain what this means about your time preferences.