Thing is, the way it's worded in your post, it sounds a lot like option b is 20% interest on principal of $1,200. I had to read it several times, and it's only because $1,200 is 120% of $1,000 that it makes any sense to read it as a total payment of $1,200.

Also, for a lot of people, even if they understood that the total payment is the same under both, if they actually don't have any good investments (e.g. they only have a non-interest-bearing current account) then the appropriate discount rate for them is extremely low.