Evaluation of Underwriter’s Municipal Bond Purcase Proposal (Predetrmination of The Proceedings in The Case of Eventual Negotiated Sale of Municipal Bonds in The City of Shtip)
There is some degree of misperception concerning the superiority of the competitive sale as the evidence
suggests that large portion of municipal emissions take the form of negotiated purchase. The following article describes the
procedure for negotiation of the eventual bond emissions in municipality of Shtip, Republic of Macedonia. The aim is to
predetermine the most cost-effective method for evaluation of underwriter’s municipal bond purchase proposal due to the
substantial inexperience and deficit of expertise of the city’s internal services. The literature offers various measures
available to compare the relative costs of bond financing proposals. While net interest cost and net-present value are
considered improper, it is thought that the best reliance for the purpose comes from the true interest cost method. The
procedure incorporates calculation of true interest cost and duration of the underwriter’s proposal and matching them with
those for a sample group of similar bonds. In this particular case, as there are no other municipals to compare with, that
would be the only available bond market index of the Macedonian Stock Exchange named OMB, with a portfolio completely
made of long-term government securities.
Keywords— Municipal Bonds, Duration, Total Interest Cost, Negotiated Sale, Competitive Sale, Municipality of Shtip,
Republic of Macedonia.