On January 1, Melrose Manufacturing issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%. The market interest rate is 5%. The issue price of the bond was $10,946. Using the effective-interest method of amortization, the interest expense for the first year ended December 31 would be:

Multiple Choice

$766.22.

$700.00.

$547.30.

$500.00.