Finance and Accounting

Factors influencing the interest rate

Project description
There are various factors that impact the interest rate which a bond issuer (such as a local government) needs to pay. Assuming that you were the finance manager of a local government, how do the following factors influence the bond interest rate? You are expected to explain what a particular factor is before elaborate on how the factor influence the bond interest rate.

—Issue characteristics:
• Competitive sale versus negotiated sale
• The number of competing underwriters
• The bond credit ratings
• The presence of credit enhancement
• The size of an issue (10 million bond versus 100 million bond)
• The years to final maturity of the issue
• The presence of a call provision
• GO bond versus revenue bond
• Whether the bond about to be issued by your local government is part of a bond bank sponsored by your state government
—Issuer characteristics
• The years of your local government’s experience in bond issuance
• Management capacity of your local government
—Market characteristics:
• Bond Buyer Index
please use the book below as a source.
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