Question
Discuss the pros and cons of each option. A major urban center is planning to issue a municipal bond for the construction of a stadium:
Discuss the pros and cons of each option.
A major urban center is planning to issue a municipal bond for the construction of a stadium:
The construction cost is $100,000,000
The design cost is estimated to be $10 million
The cost of issuance is 1% of the total (construction & design), or $1,100,000
The interest rate is 5.875%, based on the economic and financial conditions of the city
The term of the bond is 20 years
The city must decide between using:
Level debt service with semi-annual payments; or
Level principal payments made annually.
Level Debt Service
Principal Amount, $111,100,000
Interest Rate, 5.875%
Terms in Years, 20
Annual Debt Service Payment, $9,588,145
Total Interest Paid Over Bond Life, $80,662,892
Total Debt Service Over Bond Life, $191,762,892
Level Principal Payment:
Principal Amount, $111,100,000
Interest Rate, 5.875%
Terms in Years, 20
Annual Principal Payment, $5,555,000
Annual Interest Payment is Variable, see Table 20.3 on page 194 for detail on annual interest paid and total annual debt service
Total Interest Paid Over Bond Life, $68,534,813
Total Debt Service Over Bond Life, $179,634,813
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The Millionaire Next Door The Surprising Secrets Of Americas Wealthy
Authors: Thomas J. Stanley, William D. Danko
1st Edition
1589795474, 978-1589795471
