Interest question with discount bonds

Johnson company issued bonds with a $100,000 face value on January 1, 2008. The five year term bonds were issued at 98 and had a 7% rate of interest that is payable in cash on December 31st of each year. Based
on this information: The amount of interest expense shown on the December 31st, 2008 income statement would be: a) $6,600 b) $7,000 c) $7,200 d) $7,400
I know the answer is either b or c. but which would it be? Does the $2,000 discount($400 a year) need to be added in there?
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Looks like b) $7,000 to me ... where would you get any of the other numbers from?
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Got curious, and searched the IRS business section. I got this out of IRS Bulletin No. 1998-7, February 17, 1998 It's not specific to OID, but it does say the intent is to align treatment of bond premiums with OID. Thought it might be helpful as an indication, and a possible place to read more and get a definitive answer.
[Section] 1.163-13(a)
(a) General rule. If a debt instrument is issued with bond issuance premium, this section limits the amount of the issuer's interest deduction otherwise allowable under section 163(a). In general, the issuer determines its interest deduction by offsetting the interest allocable to an accrual period with the bond issuance premium allocable to that period. Bond issuance premium is allocable to an accrual period based on a constant yield. The use of a constant yield to amortize bond issuance premium is intended to generally conform the treatment of debt instruments having bond issuance premium with those having original issue discount. Unless otherwise provided, the terms used in this section have the same meaning as those terms in section 163(e), sections 1271 through 1275, and the corresponding regulations.
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So actually, with straight-line amortization of the discount, if I read this correctly, the answer looks like it would be d) $7,400.
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