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A city advertised for bids for the purchase of $2 million principal amount of Sewage...

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Finance

A city advertised for bids for the purchase of $2 million principal amount of Sewage Works Revenue Bonds. Bonds will be delivered on April 1, 2017, and interest will be paid on April 1 of the following years. The bonds mature as follows: Maturity Date Amount ($) April 1, 2022 50,000 April 1, 2023 50,000 April 1, 2024 50,000 April 1, 2025 100,000 April 1, 2026 100,000 April 1, 2027 100,000 April 1, 2028 150,000 April 1, 2029 150,000 April 1, 2030 150,000 April 1, 2031 550,000 April 1, 2032 550,000

Two bids were received: From Five Points Securities: Pay $2 million The interest rates for each maturity: 2012 through 2020, 5.50 percent 2021 through 2022, 6.25 percent From Wellington-Nelson: Pay $2 million The interest rates for each maturity: 2022 through 2024, 4.19 percent 2025 through 2030, 5.75 percent 2031 through 2032, 6.50 percent For each bid, compute the net interest cost (NIC) and the true interest cost (TIC). Which bid is more advantageous to the city?

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