Milan Company issued bonds with a face value of $200,000 on January 1, Year 1. The bonds had a 7 percent stated rate of interest and a six-year term. The bonds were issued at face value. Interest is payable on an annual basis.

Required

a. What total amount of interest will Milan Company pay in Year 1 if bond interest is paid annually each December 31?

b. What total amount of interest will Milan Company pay in Year 1 if bond interest is paid semiannually each June 30 and December 31?

c. Write a memo explaining which option Milan would prefer.