Discuss AGA GAFRB Exam Topic 2 Question 23

If a capital project has an estimated life of 30 years, which financing method is designed to impose the cost of the project on the generation who benefits from it?

A30-year serial bonds

B30-year term bonds, without a sinking fund

C30-year zero-coupon bonds, without a sinking fund

Dpay-as-you-go financing
Serial bonds mature in installments over the life of the bond (e.g., every year or every few years). This structure allows the cost of repaying the debt to align more closely with the periods in which the capital asset is used --- achieving intergenerational equity by spreading the cost over the same span as the asset's useful life.
Term bonds, zero-coupon bonds, and pay-as-you-go do not align costs with benefits across multiple years in the same way.
Relevant Reference:
GFOA Best Practices -- Debt Management and Capital Planning
GASB Concepts Statement No. 1 -- Interperiod Equity
MSRB Educational Materials on Bond Types
Answer : A. 30-year serial bonds

Suggested Answer: A

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12 comments · newest first

Reita 3 days ago

Wait, are you sure about that? What about pay-as-you-go?

Yong 8 days ago

Totally agree, they match costs with benefits perfectly.

Isidra 13 days ago

Serial bonds are a smart choice for long-term projects!

Jennie 18 days ago

I thought zero-coupon bonds were more popular for long-term financing?

Starr 23 days ago

Pay-as-you-go financing seems simpler though.

Sherita 29 days ago

Wait, are we sure serial bonds are the best option?

Chantay 1 month ago

Totally agree, they match costs with benefits perfectly.

Ming 1 month ago

Serial bonds are a smart choice for long-term projects!

Justine 1 month ago

I’m a bit confused about the differences between term bonds and serial bonds, but I feel like serial bonds are definitely the right choice here.

Vashti 2 months ago

I practiced a similar question about bond types, and I think serial bonds were highlighted for their ability to spread costs over the project’s life.

Merlyn 2 months ago

I’m not entirely sure, but I think pay-as-you-go financing might also relate to intergenerational equity, though it doesn’t last as long as the project.

Clorinda 2 months ago

I remember studying that serial bonds are designed to match costs with benefits over time, which seems to fit this question.

AGA GAFRB Exam - Topic 2 Question 23 Discussion