Neufreistadt Bonds

Neufreistadt Bonds

• par value - I recommend a factor of 1.12 times the purchase price (the nominal) as the par value. Thus if someone purchased US$100 in N-bonds, the par value would be US$112.
  
• maturity date - The original city bond sales took place on about the 1 Apr 2005, with the first sale on about the 1 Jun 2005. In the future, bonds should mature at six months from the date of issue. In the case of the original bonds, I recommend setting the maturity date at six months from the date of the first land sale. Thus the first bonds would mature on 1 Dec 2005 and all other bonds six months after issue.
  
• rate type - Bonds should return at a fixed (as opposed to variable) rate.
  
• coupon dates - Coupon dates should be monthly and coincide with land-use fee due dates such that citizens can use their coupon to pay for land-use fees, otherwise coupons are paid to them in US$ or held in a separate account (by the city bank).
  
• callability - Bonds will not be callable (meaning the city can not opt to pay them back early).
  
• puttability - Bonds can not be put in the traditional sense, where a bond holder can demand early repayment from the city. Instead, there will be monthly bond put dates, where a bond holder can have up to their monthly land-use fees (minus the coupon) deducted from the issue price. This will decrease the size of the next coupon and the par value of course.
  
• convertibility - When bonds are mature they can be transferred to other city securities (currently we have no other securities.
  
• dissolution - In the event the cooperative ceases to exist, bond holders will be given proportional shares of government-owned land from the sim or sims that the bonds were issued to support.

Example

Ulrika buys US$300 worth of N-bonds. The par value would be US$336 with a term of six months. Coupon dates are every month, so there will be six monthly coupons of US$6. At the end of six months, Ulrika will be paid US$300.

Ulrika decides that she wants to pay for her US$30 land-use fees using her N-bond. After the first month, she receives a US$6 coupon and deducts the maximum allowed US$24 from her bond to cover the fee. Her new nominal, par value, and coupon after the partial call would be US$276, US$303.60, and US$5.52.


Calculations

Par value, P, is equal to the nominal, N, times a factor:

The factor, f, is equal to a monthly return times the number of months left until maturity, n:

The coupon, C, is equal to the the par value minus the nominal divided by the number of months left until maturity: