On December 31, 2012, Dave's Delivery Service issued $10,000 worth of 10% bonds at approximately 89. These are 10 year bonds with interest paid semi-annually on June 30 and December 31.

1. What are the interest payments for the first two years?

2. Was the market interest rate higher or lower than 10% at the date of issue?

3. Will the interest expense be higher or lower than the interest payment?