Question

  What factors will affect the type of bond that a city will choose to issue for construction of a new recreation facility?

Answer 1

Debt can be defined as borrowing of money by an individual or an organization from another individual or public. Under this arrangement the amount borrowed becomes payable at a later date in future along with applicable interest agreed between borrower and lender.

The factors that impact the selection of bond are shown below:

1. Schedule of payment- The schedule of payment varies from one bond to another. In case of serial bonds, payments are made on regular basis, however in case of term bond; payments are made at the end of long period of time. So the bond can be selected by city basis on their revenue expectation.

2. Approval method- Issue of bond requires prior approval from either the voters or the legislative authority, thus on the basis of the convenience selection of the approving authority can be made for bond issue.

3. Kind of issue- There are different type of bonds that can be issued for raising money. For instance, selection of underwriter is done by municipality in case of negotiated issue and further terms and conditions can be agreed upon, wherein in case of the competitive bond issue, the bids that are provided by the underwriter is approved by municipality.

4. Revenue estimation- This is the most significant aspect in selection of the bond to be issued because it provides an insight about the expected revenue in near future. It is crucial to determine whether the revenue forecasted is sufficient to discharge the obligation towards debt or not. If it is identified that revenue will not be sufficient then revenue earned from other facility can be taken into consideration for discharging the debt obligation.