Jones Co issues $250,000 worth of 8.5% bonds on January 1, 20x2 which will mature on December 31, 20x5. The bonds are issued to yield 10%. Interest will be paid semi-annually on June 30 and December 31.

Required:

1. Will this bond sell at a premium or a discount? How do you know?
2. What will be the total interest expense over the life of this bond? Show you work.
3. Will the carrying value (book value) go up or down over the life of the bond? How do you know?
4. Will the interest expense go up or down over the life of the bond? How do you know?