Question 6

Assume it is January 1, 2020 and the town of Belmont issues a five-year $10,000 Serial Bond maturing in 2024 with the following partial maturities:

Matures in Year	Principal (Maturity/Face Value)	Annual Coupon Interest Rate
2022	$2,000	3%
2023	$3,000	4%
2024	$5,000	5%

1. Fill in the chart below to help you answer parts c. and d. Please note: (1) Some cells should be left blank and (2) The Total Interest Paid in Year and Total Principal Paid in Year is simply the sum of the numbers directly above it for each year. (3) Total Principal and Interest Paid in Year is the sum of the two sub-totals in note (2).

	2020	2021	2022	2023	2024
Interest Paid on 2022 Maturity
Interest Paid on 2023 Maturity
Interest Paid on 2024 Maturity
Total Interest Paid in Year (a)
2022 Maturity Principal Paid
2023 Maturity Principal Paid
2024 Maturity Principal Paid
Total Principal Paid in Year (b)
Total Principal and Interest Paid in Year (a+b)

2. Calculate the Bond Dollar Years for the issuance of this serial bond. (show work)

3. Assume the Serial Bond was issued at a $1,000 premium. Using some of the figures you calculated in the part a. chart as well as your answer to b., determine the Net Interest Cost (NIC) of this Serial Bond.

4. Assume, this time, that the Serial Bond was issued at a $500 discount. Using some of the figures you calculated in the part a. chart, determine the True Interest Cost (TIC) of this Serial Bond.

Excel Formula (symbols only)	Excel Formula (numbers only)	Answer (number only)

5. Which method always calculates the more accurate Interest Cost/Return for the Serial Bond? (circle one)

NET INTEREST COST (NIC) METHOD TRUE INTEREST COST (TIC) METHOD

6. Briefly explain why investors in this serial bond are unlikely to earn the actual NIC/TIC rates you calculated above.