Business, 10.08.2021 01:20 curlyheadnikii

Interest only versus an installment note Sanders Co. is planning to finance an expansion of its operations by borrowing $150,000. City Bank has agreed to loan Sanders the funds. Sanders 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 $15,000 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 Sanders pay in year 1
(1) Under option 1?
(2) Under option 2?
b. What amount of interest will Sanders pay in year 2
(1) Under option 1?
(2) Under option 2?
c. Explain the advantage of each option

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Interest only versus an installment note Sanders Co. is planning to finance an expansion of its ope...

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