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 draw 34 per cent interest, compounded annually. 
Annual interest on bonds. 
4 per cent. 5 per-cent. 
Term in 
years. Total an- Total an- 
nual pay- nual pay- 
ment, in- | Total cost | ment, in- | Total cost 
terest,and} ofloan. | terest,and| ofloan. 
sinking sinking 
fund. fund. 
5 $22, 648 $113, 241 $23, 648 $118, 241 
10 12,524 125, 241 13, 524 135, 241 
15 9,183 137, 738 10, 183 152, 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 life 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. 
See 
