What is the preferred method for determining the interest cost of a bond issue?

The preferred method for determining the interest cost of a bond issue is the true interest cost (TIC). This method provides a comprehensive measure of the actual cost of borrowing by incorporating not only the nominal interest payments but also other associated costs like the issuance fees and any premium or discount on the bond.

TIC reflects the true economic cost of the bond over its entire life and calculates the effective interest rate that the issuer pays, based on the present value of all cash flows (interest and principal repayments). It incorporates the timing of these cash flows better than other methods, allowing for a more accurate assessment of the bond's cost. This makes it particularly useful for comparisons between different bond issuances or for evaluating the costs of various financing options.

While net interest cost can provide a simple way to look at the interest payments without deeply considering the timing of cash flows, it does not accurately reflect the true economic impact on the issuer. Yield to maturity, on the other hand, is mainly used in the context of an investor's perspective to determine the return on an investment but is less ideal from the issuer's point of view for determining cost. The market interest rate, while important for understanding overall market conditions, does not capture the specific costs associated with a bond issue