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AN ANALYSIS OF THE TIC CRITERION FOR ACCEPTING TAX‐EXEMPT BOND BIDS UNDER CERTAINTY
Author(s) -
Braswell Ronald C.,
Sumners Dewitt L.
Publication year - 1982
Publication title -
decision sciences
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.238
H-Index - 108
eISSN - 1540-5915
pISSN - 0011-7315
DOI - 10.1111/j.1540-5915.1982.tb00132.x
Subject(s) - issuer , coupon , certainty , bond , economics , actuarial science , bid price , microeconomics , financial economics , business , mathematics , finance , geometry
Several analysts have advocated the TIC criterion for the selection of bids in the tax‐free bond market. The proponents, however, have overlooked the bias introduced by the TIC method. An analysis is developed which shows that use of TIC can result in economically incorrect rankings for the issuer. We prove, under conditions of certainty, that given any Bid A, it is possible to construct Bid B with coupon rates arbitrarily close to Bid A such that the TIC criterion leads to acceptance of the bid with the higher present value of interest costs.