Interest Expense – MCQ

Practice Question

Intro to Financial Accounting
Non-Current Liabilities
Interest Expense Calculations
MCQs

A company issues a bond with 10% interest at a face value of $500,000 and pays interest semi-annually. What is the total cash payment for interest over 5 years?

  1. $250,000
  2. $500,000
  3. $50,000
  4. $1,000,000
Answer +
Correct Answer: B
Explanation +

Total interest paid = Face Value × Coupon Rate × Number of Periods

The bond pays interest semi-annually for 5 years, so there are 10 total payments (5 × 2).

$500,000 × 10% × 10 = $500,000 in total interest payments.

This reflects the cash outflows a company must plan for during the bond's term, which directly impacts liquidity and financial planning.