Question

All Star Amusements is planning to issue long-term bonds payable to borrow for a major expansion. For each of the following questions, identify whether the bond price involves a discount, a premium, or par value.
a. The stated interest rate on the bonds is 7%, and the market interest rate is 8%. What type of price can All Star Amusements expect for the bonds?
b. All Star Amusements could raise the stated interest rate on the bonds to 9% (market rate is 8%). In that case, what type of price can All Star Amusements expect for the bonds?
c. At what type of bond price will All Star Amusements have total interest expense equal to the cash interest payments?
d. At which type of price will All Star Amusements’ total interest expense be less than the cash interest payments?
e. At which type of price will All Star Amusements' total interest expense be greater than the cash interest payments?


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  • CreatedJuly 08, 2015
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