Article(electronic)#1January 1982
AN ANALYSIS OF THE TIC CRITERION FOR ACCEPTING TAX‐EXEMPT BOND BIDS UNDER CERTAINTY
In: Decision sciences, Volume 13, Issue 1, p. 88-100
ISSN: 1540-5915
ABSTRACTSeveral analysts have advocated the TIC criterion for the selection of bids in the tax‐free bond market. The proponents, however, have overlooked the bias introduced by the TIC method. An analysis is developed which shows that use of TIC can result in economically incorrect rankings for the issuer. We prove, under conditions of certainty, that given any Bid A, it is possible to construct Bid B with coupon rates arbitrarily close to Bid A such that the TIC criterion leads to acceptance of the bid with the higher present value of interest costs.