Exercise 10-1B Interest only versus an installment note Pare Co. borrowed $80,000 from National Bank by issuing a note with a five-year term. Pare has two options with respect to the payment of interest and principal. Option I requires the payment of interest only on an annual basis with the full amount of the principal due at maturity. Option 2 calls for an an- nual payment that includes interest due plus a partial repayment of the principal balance. The effective annual interest rate on both notes is identical. Required Write a memo explaining how the two alternatives will affect (a) the carrying value of liabilities, (b) the amount of annual interest expense, (c) the total amount of interest that will be paid over the life of the note, and (d) the cash flow consequences. EXERCISE 10-1B Points that should be noted: a. Compare the carrying value of the two options. b. Compare the annual interest of the two options. c. Which option will produce the highest total amount of interest? d. Compare the cash flow associate with the two options