True interest cost is a measure of an issuer’s overall interest cost related to a bond issue, and may be used to pick the winning underwriter in a competitive sale. Like net interest cost (NIC), true interest cost considers the issuer’s total interest expense through coupon payments to bondholders, plus any discount or less any premium, in relation to the overall amount of principal and time to maturity.
Unlike NIC, however, TIC also takes into account the time value of money; in other words, true interest cost assumes that money today is worth more than the same amount of money sometime in the future, because the current-day money has more time to earn interest. As a result, TIC is typically lower than NIC for the same bond issue.
Another type of TIC, the all-in true interest cost, uses the same concept as true interest cost, but takes the cost of issuance out of the calculation. By subtracting the cost of issuance from the total bond proceeds, the issuer essentially borrows less money in the all-in TIC calculation than the TIC calculation. Because interest payments to bondholders are the same for both calculations, however, the all-in TIC is slightly higher than the TIC.