Allison Supply, Inc., is planning to issue long-term bonds payable to fund 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 6 percent, and the market interest rate is 7 percent. What type of price can Allison Supply, Inc., expect for the bonds?

b. Allison Supply, Inc., could raise the stated interest rate on the bonds to 8 percent (market rate is 7 percent). In that case, what type of price can Allison Supply, Inc., expect for the bonds?

c. At which type of bond price will Allison Supply, Inc., have total interest expense equal to the cash interest payments?

d. At which type of price will Allison Supply, Inc.’s total interest expense be less than the cash interest payments?

e. At which type of price will Allison Supply, Inc.’s total interest expense be greater than the cash interest payments?