Interest Expense – MCQ

Practice Question

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

Calculate the cumulative interest expense incurred on a $1,000,000 bond with an annual coupon rate of 5%, paid semi-annually, over 4 years.

  1. $100,000
  2. $200,000
  3. $400,000
  4. $50,000
Answer +
Correct Answer: A
Explanation +

Total interest = Face Value × Coupon Rate × Time

= $1,000,000 × 5% × 4 years = $200,000

Since interest is paid semi-annually, it is paid in two installments per year (every 6 months), but the total over 4 years remains $200,000 in cash payments.

The annual interest is $50,000, paid as $25,000 twice per year for 4 years, totaling $200,000 in cumulative interest expense.