Which statement correctly describes the difference between negotiated and competitive bond sales?

Which statement correctly describes the difference between negotiated and competitive bond sales?

• A. In a competitive sale, terms are negotiated with the underwriter; in a negotiated sale, bids are sealed and awarded to the lowest interest cost.
• B. In a competitive sale, sealed bids are evaluated by the underwriter with terms negotiated after bidding; in a negotiated sale, terms are fixed before bidding.
• C. In a competitive sale, bids are sealed and awarded to the bidder with the lowest interest cost; in a negotiated sale, terms are negotiated with the underwriter.
• D. In a competitive sale, bonds are bought directly by the district; in a negotiated sale, the underwriter sets the rates unilaterally.

Answer: (C)

The difference is how the price and terms of the bond issue are determined. In a competitive sale, the issuer invites sealed bids from underwriters, and the winner is the bid with the lowest true interest cost to the issuer. Terms aren’t negotiated after bids are submitted; the bid itself sets the rate and pricing. In a negotiated sale, the issuer selects an underwriter and works with them to set and structure the terms before the sale. The underwriter commits to purchase the issue and helps determine the interest rate, structure, and pricing through negotiation rather than through a sealed-bid competition. So the statement that describes a competitive sale as sealed bids awarded to the lowest true interest cost, and a negotiated sale as terms negotiated with the underwriter, captures the essential difference. The other descriptions mix up who negotiates terms or when, or imply actions that don’t align with how these sale processes actually operate.

The difference is how the price and terms of the bond issue are determined. In a competitive sale, the issuer invites sealed bids from underwriters, and the winner is the bid with the lowest true interest cost to the issuer. Terms aren’t negotiated after bids are submitted; the bid itself sets the rate and pricing.

In a negotiated sale, the issuer selects an underwriter and works with them to set and structure the terms before the sale. The underwriter commits to purchase the issue and helps determine the interest rate, structure, and pricing through negotiation rather than through a sealed-bid competition.

So the statement that describes a competitive sale as sealed bids awarded to the lowest true interest cost, and a negotiated sale as terms negotiated with the underwriter, captures the essential difference. The other descriptions mix up who negotiates terms or when, or imply actions that don’t align with how these sale processes actually operate.