The unamortized discount will decrease by $998 at the end of first year and will be $3,495.
Interest expense = ($131,169)(0.08) = $10,493.52, or $10,494.
Coupon payment = ($135,662)(0.07) = $9,496.
Change in discount = ($10,494 − $9,496) = $998.
Discount at the end of first year = $4,493 − $998 = $3,495.
