We use cookies to improve security, personalize the user experience,
enhance our marketing activities (including cooperating with our marketing partners) and for other
business use.
Click "here" to read our Cookie Policy.
By clicking "Accept" you agree to the use of cookies. Read less
Understanding True Interest Cost: A Comprehensive Legal Overview
Definition & Meaning
True Interest Cost (TIC) is a method used to calculate the effective interest cost of a municipal bond offering. This calculation accounts for the time value of money, meaning it considers not only the amount of payments made but also the timing of those payments. By doing so, TIC provides a more accurate representation of the cost of borrowing compared to other methods, such as Net Interest Cost (NIC), which does not factor in the present value of future payments. TIC is sometimes referred to as Canadian Interest Cost.
Table of content
Legal Use & context
True Interest Cost is primarily used in the context of municipal finance and bond offerings. It is important for municipalities when they are issuing bonds to raise funds for projects. Understanding TIC helps municipalities make informed decisions about borrowing costs and can influence the bidding process when selecting underwriters for bond sales. Users may find templates and forms related to municipal bond offerings on platforms like US Legal Forms.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
For instance, a city issues a municipal bond with a total payment of $1 million over ten years. The True Interest Cost calculation would take into account the timing of those payments, providing a clearer picture of the actual cost of borrowing compared to simply looking at the total payment amount. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
True Interest Cost Variations
California
Uses TIC for all municipal bond offerings.
Texas
May have specific regulations on TIC calculations.
New York
Requires disclosure of TIC in bond offering statements.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
True Interest Cost
Considers time value of money in bond cost calculation.
Includes timing of payments.
Net Interest Cost
Calculates total interest without present value adjustments.
Does not consider payment timing.
Common misunderstandings
What to do if this term applies to you
If you are involved in a municipal bond offering, it is essential to understand how True Interest Cost affects your financial decisions. You can explore US Legal Forms for templates and resources related to municipal finance. If your situation is complex, consider seeking advice from a financial or legal professional.
Find the legal form that fits your case
Browse our library of 85,000+ state-specific legal templates.