Response to the following problem:
All Star Productions is planning to issue long-term bonds payable to borrow for a major expansion. The chief executive, Marty Boyd, asks your advice on some related matters, as follows:
a. The stated interest rate on the bonds is 7%, and the market interest rate is 8%. What type of price can All Star expect for the bonds?
b. All Star 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 expect for the bonds?
c. At what type of bond price will All Star have total interest expense equal to the cash interest payments?
d. Under which type of price will All Star's total interest expense be less than the cash interest payments?
e. Under which type of price will All Star's total interest expense be greater than the cash interest payments?