This paper covers a scenario based bond calculation for a real lifetime event. The Big Dig was a Boston’s Central Artery Project that was one of the greatest challenges that relocated the main highway under the city via tunneling. This paper aims to find how much toll should be charged from each car passing that route to cover the cost incurred to rebuild the project. Methods Calculating the value of the bond for each car is a fairly simple process. We just need to know how much in reality will the total amount the government is incurring plus how much the interest rate the government is paying on the bond each year.
With the sum of these two figures, we will get the total cost the government has incurred on this project. \ Then it is a simple case of calculating how many cars would pass from that highway in 30 years and simply dividing the total cost of that project with the total number of cars passed in 30 years. Results The calculations show that the price charged for each car passing through the highway should pay about $ 17. 123 for the finance cost to be covered completely. (Calculations in Appendix) Recommendations
The results from the calculations are quite fair considering the huge challenge this operation was. The price of $17. 123 per car will exactly cover the costs of the finance. However one keep the reality in mind and should account for extra added expense that the government would need to pay in terms of fees, toll booths costs, maintenance etc. For this reason a price slightly higher than the price stated in the results section should be asked so that the cost of such additional expenses can be covered as well. Appendix The government took a 15 Billion bond financed for 30 years at 5% interest each year.
This means that the government needs to payback the total 15 Billion at the end of 30 years and the interest of 5% each year. Interest Payments each year = 5% of 15 Billion = 0. 75 Billion Interest Payments in 30 Years = 0. 75 Billion x 30 Years = 22. 5 Billion Face Price to be returned = 15 Billion Total Value to be Returned = 22. 5 Billion + 15 Billion = 37. 5 Billion Number of Cars each Day = 200,000 No. of Days in a Year = 365 No. of Years = 30 No. of Days in 30 Years = 10950 No. of Cars in 30 Years = 200,000 x 10,950 = 2,190,000,000 Therefore, Toll for each car = 37. 5 Billion / 2. 19 Billion = $ 17. 123
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