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P3

Amortizing the difference, by the rate

Charge the market rate against the beginning carrying value, period by period.

Beginning carrying value

$93,537

× 5% market rate

$4,677

Amortization − cash interest

$677

The ties interest expense to the market rate and whatever carrying value is actually outstanding — as the discount amortizes and carrying value rises toward par, interest expense rises with it.

Cash interest stays fixed at $4,000 every period; only the expense and the amortization move. This is the method most textbooks treat as the more accurate one.