At the start of the year, Axon, Inc. issued bonds for $38,800. The bonds had a face value of $40,000. If the coupon (stated) rate of interest was 4% and the effective (market) rate of interest was 5%, how would Axon calculate the interest expense for the first year using the effective interest method?
a. $38,800 x 4%
b. 40,000-38,800
c. $40,000 x 5%
d. $40,000 x 4%
e. $38,800 x 5%