Net Interest Cost (NIC)

DEFINITION of 'Net Interest Cost (NIC)'

A mathematical formula that an issuer of bonds uses to compute the overall interest expense that is associated with their bonds, which they will have to pay. The formula for net interest cost (NIC) is based on the average coupon rate weighted to years of maturity, and is adjusted for any associated discounts or premiums.

BREAKING DOWN 'Net Interest Cost (NIC)'

Debt issuers sometimes use NIC to evaluate the bids from various underwriters and usually award the contract to the syndicate offering the lowest net interest.

However, it may be an incorrect method of selecting underwriters who could present a low NIC, but have a higher TIC (total interest cost) over the lifetime of the bond.

The NIC formula was created before the widespread use of computers and is a simple, straightforward calculation based on available bond information.

RELATED TERMS
  1. Bond Purchase Agreement

    A legally binding document between a bond issuer and an underwriter ...
  2. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  3. Zero-Coupon Bond

    A debt security that doesn't pay interest (a coupon) but is traded ...
  4. Reverse Convertible Bond - RCB

    A bond that can be converted to cash, debt or equity at the discretion ...
  5. Reinvestment Rate

    The amount of interest that can be earned when money is taken ...
  6. Average Effective Maturity

    For a single bond, it is a measure of maturity that takes into ...
Related Articles
  1. Personal Finance

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  2. Markets

    Using Excel PV Function to compute Bonds PV

    To determine the value of a bond today - for a fixed principal (par value) to be repaid in the future at any predetermined time - we can use an Excel spreadsheet.
  3. Retirement

    Analyzing The Best Retirement Plans And Investment Options: Bonds

    What they are: Debt securities in which you lend money to an issuer (such as a corporation or government) in exchange for interest payments and the future repayment of the bond’s face value. ...
  4. Markets

    Comparing Yield To Maturity And The Coupon Rate

    Investors base investing decisions and strategies on yield to maturity more so than coupon rates.
  5. Markets

    Advanced Bond Concepts: Bond Pricing

    It is important for prospective bond buyers to know how to determine the price of a bond because it will indicate the yield received should the bond be purchased. In this section, we will run ...
  6. Managing Wealth

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  7. Managing Wealth

    Risks To Consider Before Investing In Bonds

    Make sure you understand the risks associated with bonds before making an investment decision.
  8. Markets

    7 Questions to Consider Before Investing in Bonds

    There is a significant number of questions every investor, private or institutional, should consider before investing in bonds.
  9. Markets

    How Does A Bond’s Coupon Interest Rate Affect Its Price?

    All bonds come with a coupon interest rate, which is the fixed annual interest a bond pays.
  10. Financial Advisor

    Advising FAs: Explaining Bonds to a Client

    Most of us have borrowed money at some point in our lives, and just as people need money, so do companies and governments. Companies need funds to expand into new markets, while governments need ...
RELATED FAQS
  1. How do I use the holding period return yield to evaluate my bond portfolio?

    Find out how to use the holding period return yield formula to evaluate the performance of bonds in your portfolio, and view ... Read Answer >>
  2. Why do bond coupon rates vary so greatly?

    Learn about the two major reasons that cause bond coupon rates to vary so dramatically and what role coupons play in the ... Read Answer >>
  3. How does a bond's coupon interest rate affect its price?

    Find out why the difference between the coupon interest rate on a bond and prevailing market interest rates has a large impact ... Read Answer >>
  4. How can I use the holding period return yield to determine whether or not I should ...

    Find out how to use the holding period return yield formula to determine whether it is a good time to sell your bond based ... Read Answer >>
  5. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
  6. What happens to the price of a premium bond as it approaches maturity?

    Learn how bonds trade in regard to premiums and discounts, and how bond prices shift closer to par value as bonds approach ... Read Answer >>
Trading Center