Morgan Co. is planning to finance an expansion of its operations by borrowing \(\$ 100,000\). City Bank has agreed to loan Morgan the funds. Morgan has two repayment options: (1) to issue a note with the principal due in 10 years and with interest payable annually or (2) to issue a note to repay \(\$ 10,000\) of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 8 percent for each option.

Required

a. What amount of interest will Morgan pay in year 1
(1) Under option 1 ?

(2) Under option \(2 ?\)

b. What amount of interest will Morgan pay in year 2
(1) Under option 1 ?

(2) Under option 2 ?

c. Explain the advantage of each option.