20 



BULLETIN 136, U. S. DEPARTMENT OF AGRICULTURE. 



Table 14. 



-Annual and total costs of a loan of §100,000 for varying periods, with sink- 

 ing fund to draiv 3^ per cent interest, compounded annually. 





j 



Annual interest on bonds 





4 per 



cent. 



5 per cent. 



Term in 











years. 



Total an- 

 nual pay- 





Total an- 

 nual pay- 







ment, in- 



Total cost 



ment, in- 



Total cost 





terest, and 



of loan. 



terest, and 



of loan. 





sinking 





sinking 







fund. 





fund. 





5 



$22, 648 



$113,241 



823, 648 



S118,241 



10 



12. 524 



125,241 



13. 524 



135. 241 



15 



9,183 



137, 73S 



10, 1S3 



152, 738 



20 



7.536 



150.722 



8,536 



170, 722 



25 



6,567 



164, 185 



7,567 



189,185 



30 



5,937 



178, 114 



6,937 



208, 114 



35 



5,500 



192, 494 



6,500 



227, 494 



40 



5.183 



207, 309 



6,183 



247, 309 



45 



4,945 



222, 540 



5,945 



267, 540 



50 



4,763 



238,169 



5. 763 



288, 169 



The same facts are presented in the diagram of Plate III, figure 1. 

 The curves of annual cost of interest and retirement fall very slowly 

 after the 30-year point. 



It is an unfortunate fact that most highways do not have a life of 

 30 years, and it is now quite evident that the life of the highway and 

 not the apparent economic term of the bond should determine the 

 length of the loan. Many miles of natural soil roads are annually 

 built by 30-year bond issues. There is usually no provision for repair 

 and maintenance charges, and little business organization in the county 

 road system. This practice is financially dangerous. No gravel road 

 surface can last 30 years/ and apparently the only road surfaces for 

 which a 30-year fife is recorded are surfaces of far more expensive 

 construction than are usually built under the bond issues reported to 

 the Office of Public Roads. 



There is a further advantage in the annuity or serial bond for high- 

 way construction, because it is more likely under such a bond that the 

 road surface will be paid for before it is entirely worn out. If an 

 annuity or serial bond begins to mature immediately, this is not con- 

 sidered a serious objection among bankers. These types of bonds are 

 particularly adapted for financing operations which by their very 

 nature involve a wasting of the property. A highway is in part a 

 wasting property and it is desirable to have established a margin of 

 safety in highway financing. Railroads frequently issue serial equip- 

 ment bonds for a period of 10 years with which to purchase rolling 

 stock. The amount of bonds retired annually is carefully adjusted 

 so that the retirement is faster than the depreciation of the rolling 

 stock. The difference between the outstanding bonds and the value 

 of the equipment in any year is the margin of safety. 



1 Massachusetts in 1912 reduced the term of State highway bonds from 30 to 15 years. Wisconsin passed 

 a law, effective in 1913, providing that counties may issue 5 per cent bonds for State highways for periods 

 not to exceed 10 years. The bonds must be serial bonds, with interest and redemption fund to be raised 

 by direct taxation. 



