Marshall Co. is planning to finance an expansion of its operations by borrowing \($50,000\) . City Bank has agreed to loan Marshall the funds. Marshall 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 \($5,000\) of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 9 percent for each option.

Required:

a. What amount of interest wall Marshall pay in year 1 (1) Under option 1?
(2) Under option 2?

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

c. Explain the advantage of each option.