Total Cost by the Three Kinds of Bonds.
—The total cost of a loan, as shown by the following table taken from Bulletin 136, U. S. Department of Agriculture, is generally greatest under the sinking fund plan and least under the serial. The serial, too, is the simplest to compute.
Total Cost of a $100,000 Loan for 20 Years
Interest Compounded Annually[198]
| Annual Interest on Bonds | Sinking-fund Bond Compounded Annually at | Annuity Bond | Serial Bond | |||
|---|---|---|---|---|---|---|
| 3% | 31⁄2% | 4% | ||||
| 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 | |
The sinking-fund bonds are made out to run the full period and are paid for from the proceeds of the sinking-fund at the end of the term. Serial and annuity bonds are made to mature in proportion to the amounts paid each year. In the example used the serial system would retire $2000 worth of bonds each year, while with the annuity system $1800 would be retired at the end of the first year; $1900, the next; $2000, the third; $2100 the fourth, and $2200 the fifth.
Interest coupons, that is, notes for the payment of interest at stated intervals and providing for interest upon the interest if not paid at maturity, are usually attached to the bonds for the entire period that they run, one to be clipped at each interest pay day.