ABSTRACT
Municipal bond market participants have been embroiled in a perpetual debate about the most cost-effective method of issuing securities. Proponents of the competitive sale process cite the inherent protections afforded by open competition as sufficient justification for the receipt of public bids. Until recently, the most prevalent method of evaluating public bids was through the use of a net interest cost (NIC) calculation. The NIC is the average interest rate on a bond issue calculated on the basis of simple interest. The disadvantage of the NIC calculation method is that it gives equal weight to each interest payment regardless of the date on which it was paid. The preferred method of ascertaining the effective interest cost of a particular bid is through the calculation of a bond issue's true interest cost (TIC). Unlike the NIC calculation, the TIC technique takes account of the time value of money by treating debt service payments in present-value terms.
