A company has $$1,000,000$ in $2\mathrm{.}8\%$ fixed rate debt, with interest due on December $31$ of each year. On January $1$ it swaps its fixed interest payments for variable payments at the Treasury bill rate plus $0\mathrm{.}7\%.$ The current Treasury bill rate is $1\mathrm{.}9\%.$ The swap qualifies as a fair value hedge of the fixed payments. The company's accounting year ends December $31,$ and all income effects of the loan and the swap are reporte in interest expense. On December $31,$ the Treasury bill rate has increased to $2\mathrm{.}2\%,$ increasing the variable payments on the swap for the following year. The swap value and the loan value each change by $$80,000.$

The company reports interest expense of:

$$28,000$

$$26,000$

$$30,000$

$$25,000$