Question
1. New York advertised for bids for the purchase of $4 million principal amount of Power Revenue Bonds. Bonds will be delivered on June 1,
1. New York advertised for bids for the purchase of $4 million principal amount of Power Revenue Bonds. Bonds will be delivered on June 1, 2022, and the interest will be paid on June 1st of the following years.
The bonds mature as follows:
Maturity Date Amount ($)
6/1/2027 100,000
6/1/2028 100,000
6/1/2029 150,000
6/1/2030 150,000
6/1/2031 300,000
6/1/2032 300,000
6/1/2033 350,000
6/1/2034 450,000
6/1/2035 500,000
6/1/2036 800,000
6/1/2037 800,000
The City received three competing bids for the Power Revenue Bonds.
The three offers are as follows:
From Ringel Securities: The City receives $3.9 million dollars The Interest Rates for the serial bonds with maturities:
o 2027 through 2030, 5.55 percent
o 2031 through 2037, 6.00 percent
From Jabodyr Securities: The City Receives $4 million dollars The Interest Rates for the serial bonds with maturities:
o 2027 through 2029, 4.75 percent
o 2030 through 2034, 5.25 percent
o 2035 through 2037, 6.50 percent
From Typlili Corp: The City receives $4.05 million dollars The Interest rates for the serial bonds with maturities:
o 2027 to 2033, 5.45 percent
o 2034 to 2037, 6.25 percent
For each bid, compute the net interest cost (NIC) and the true interest cost (TIC). Which bid is more advantageous for the city?
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