On January 1, 2016, an investor paid $295,000 for bonds with a face amount of $315,000. The contract rate of interest is 10% while the current market rate of interest 13%. Using the effective method, how much interest income is recognized by the investor in 2017 (assume annual interest payments and amoritization)? (Round your answer to the nearest dollar amount.)

1.) $37,381

2.) $39,241

3.) $29,500

4.) $38,350

Please show work