=Annuity Bonds.=--Annuity bonds are drawn in such a manner that the amount of the payment for principle and interest is the same each year during the life of the bond. When the amount of the issue and the rate of interest has been determined and the amount of the desired annual payment has been determined, the number of years the bonds must run is computed. This method is convenient in that the amount of the tax to be levied each year remains constant. =Serial Bonds.=--Serial bonds are drawn so that a uniform amount of the principle is retired each year after retirement starts and the total interest payments decrease each year after the first bonds are retired. The first bond may not be retired for a number of years after the issue of the bonds, but when it once starts retirement proceeds at a constant rate annually. =Comparison of Methods of Issuing Bonds.=--The relative costs of financing by either of the three methods depends upon the rate of interest in each case and the net rate secured on the sinking fund provided for retiring sinking fund bonds. For comparative purposes, some typical examples are given in Table 3. These illustrate the differences in total cost of securing $100,000 by each of the three methods at various interest rates. TABLE 3 TOTAL COST OF A LOAN OF $100,000 FOR 20 YEARS, INTEREST COMPOUNDED ANNUALLY ---------+---------------------------------------+---------+--------- Annual | Sinking Fund Compounded | | Interest | Annually at | | on Bonds +----------+----------------+-----------+ Annuity | Serial |3 per cent| 3-1/2 per cent | 4 per cent| | ---------+----------+----------------+-----------+---------+--------- 4 | $154,431 | $150,722 | $147,163 |$147,163 | $142,000 4-1/2 | 164,431 | 160,722 | 157,163 | 153,752 | 147,250 5 | 174,431 | 170,722 | 167,163 | 160,485 | 152,500 5-1/2 | 184,431 | 180,722 | 177,163 | 167,359 | 157,750 6 | 194,431 | 190,722 | 187,163 | 174,369 | 163,000 ---------+----------+----------------+-----------+---------+--------- =Desirability of Road Bonds.=--In theory the bond method of financing enables the highway authorities to construct a large mileage of roads in a few years and spreads the cost over the period during which the public is being benefited. Better prices are obtained on contracts for a large mileage than for smaller jobs, and the community can receive the benefit more quickly than where construction proceeds piecemeal with current funds. The vital consideration is to insure that the term of the bonds is well within the useful life of the road, and that ample provision is made to maintain the roads during that period. Under proper restrictions the bond method of financing is to be commended. The bonds are an attractive investment and readily marketable on satisfactory terms. CHAPTER III