Net Interest Cost (NIC)

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DEFINITION

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.

INVESTOPEDIA EXPLAINS

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.


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