Textbook Problem

You are purchasing a new car and plan to finance it through your employee credit union. The credit union has offered you two different promissory note plans, as follows:

Option 1: Three years at 6%, with interest payable annually.

Option 2: One year at 5%, renewable each year for up to three more years, at the then-current interest rate. Interest is payable at the end of each year.

Prepare a written report summarizing the advantages and disadvantages of each of these options.