True interest cost is a calculation for the cost of a municipal issuer’s interest expense that includes the time value of money.
When a municipal issuer of securities is considering bids by underwriters to sell their new issue of municipal bonds they will often consider the true interest cost of the required interest payments. The true interest cost takes into account the fact that payments made in later years will be made with dollars that are less valuable than the dollars today. The fact that inflation erodes the value of the dollar over time will reduce the issuer’s true interest cost or TIC.
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