or down, and then each is usually allowed to suit his own pleasure in closing out his interest.

Bolivar. The monetary unit of Venezuela, being equal to the French" franc," and to $.193 United States money. This name was chosen in honour of the hero of Venezuela.

Boliviano. The monetary unit of Bolivia, silver, and equal at this time1 in value to about $.478 United States money.

Bonanza. Any lucky strike of rich ore in a mine; an unusually profitable speculation or investment.

Bond. An instrument by which a government, municipality, or corporation contracts and agrees to pay a specified sum of money on a given date (sometimes reserving the right for earlier payment), the bond itself being a coupon-bearing (or registered) note under seal; the coupons representing the quarterly, semi-annual, or annual interest, as the case may be, at a fixed rate. (See "Corporation Bonds.")

In the case of a "corporation bond," a mortgage is usually placed upon the property to secure the issue. In the case of the government or municipality, no mortgage is necessary, although sometimes certain revenues are pledged for payment of the principal, or interest, or both. The government or municipality, as a rule, simply issues its promise to pay under seal in the form of a "bond" as already described.

"Bonds" are issued by corporations, when sufficient money for the capital of same cannot be raised by the issuing of stock at satisfactory prices, or when, perhaps, the limit of stock which can be issued legally has been reached, and additional money is required. Again, suppose a corporation is enjoying very good profits, earning and paying, for example, 10% dividends upon its stock; it needs money for additions and extensions; to issue more stock would be equivalent to borrowing money at the high rate of interest of 10%, for that

United States Treasury Department Circular issued April 1, 1906. 'Two men of finance once made the attempt to define a 'bond " in the fewest possible words with this result: First, "Promise to pay under seal." Second, "Chosen action under seal." The writer offers these for consideration.

'Cleveland, in his "Funds and Their Uses," distinguishes between a bond and an ordinary promissory note in this way: The only way that a bond is distinguished from an ordinary promissory note is by the fact that it is issued as a part of a series of like tenor and amount, and, in most cases, under a common security. By rule of common law the bond is also more formal in its execution. The note is a simple promise (in any form, so long as a definite promise for the payment of money appears upon its face), signed by the party bound, without any formality as to witnesses or seal. The bond, on the other hand, in its old common-law form, required a seal, and had to be witnessed in the same manner as a deed or other formal conveyance of property, and though assignable was not negotiable This is still the rule within many jurisdictions.'

is what the stock issue already outstanding is returning to its owners. The company finds it is possible to sell bonds bearing 5% interest to raise the needed capital. It is expected that the increased capital will return earnings to the corporation not less than that already invested; viz. 10%. Consequently, by the sale of bonds bearing 5% interest, the difference between that and the expected earning capacity of the new capital, or another 5%, would accrue to the benefit of the stock already outstanding, and increase, therefore, the rate of dividends upon that stock.

Bonded Debt. The fixed indebtedness of a municipality or incorporated company in the form of bonds. (See "Bond.") The question of the amount of bonded indebtedness fair to place upon property, fair to both the shareholders and bondholders, is a question deserving of much serious consideration. There is a general belief that the property of a corporation should only be mortgaged to the extent of its unchangeable value; that is, the minimum value of such property, as generally recognized, in a time of public adversity. Mortgaging a property to this extent would leave the shareholders to take the risk of the fluctuating value, and it is proper that they should do so, for, as a rule, the bonds on a property are expected to pay a lesser rate of interest than the dividend return to the shareholders. It is impossible to give any set rules here: each case will have to be judged upon its own merits. The amount of sinking fund must be taken into consideration, also the kind of property mortgaged. For instance, some properties depreciate through wear and tear much faster than others—street railways, for instance, more rapidly than electric light or gas plants. (This subject will be found more fully treated under the heading "Sinking Fund.")

In the case of municipal bonded indebtedness, a very prominent lawyer once made the statement that no municipality could ever stand a greater net indebtedness" than 5% of its assessed valuation, and that is a very good rule to follow, but, like all good rules, it has its glaring exceptions; for instance, the assessed valuations of some Far West and Middle West communities are very much less, in proportion to the marketable value of the property, than here in the East (This is more fully set forth under the heading “ Assessed Valuation "), and, in such cases, a greater net indebtedness than 5% might be fully justified.

Another thing to be considered is not to be influenced too much by the offer of a new issue at a figure below the par value that is, at a discount. If a railway corporation sells an issue of bonds having 20 years to run, bearing 5% interest, and receives but 80 cents on a dollar for the same, the pur

chaser is prone to believe that the net earnings need to provide for only 5% on the bond issue, but when these bonds mature, 20 years afterwards, they must be paid off at par, or 20% in excess of the original selling price. This 20% must come from some source, and, therefore, it would be better for the purchaser to spread this 20% over the time which the bonds have to run, estimating the issue roughly, bearing, say, a 6% rather than a 5% rate; then, judge whether, or not, the corporation can stand such an interest charge. On the whole, it is better financiering for a corporation to issue its bonds at a rate of interest which will warrant their sale in the close proximity to par.

Bond for a Deed. An instrument which the seller of land gives to the one wishing to purchase it, and which binds the former to convey the title upon receiving price agreed upon.

Bond of Indemnity. In investment matters the common use of the "bond of indemnity" is in case of a lost security. It is a form of guaranty protecting a corporation (firm or individual) in event of presentation at some future time of a security which had been lost by the owner and the corporation issuing the same had issued a new security in its stead. The usual way of obtaining such a "bond of indemnity" is to apply to some "guaranty and indemnity company which makes a business of furnishing such bonds upon satisfactory evidence that the security has been lost or destroyed. For this bond, which is really a form of insurance, a reasonable charge is made.

A "bond of indemnity " has many uses to secure one against loss in money matters, but one of the most common is as a protection for the employer against loss resulting from the handling of funds, securities, etc., by an employee; as the cashier or treasurer of a bank. Such a bond may be obtained by an executor or administrator of an estate when required by law.

66

All "bonds of indemnity " used formerly to be obtained by getting one or more private individuals to go on his bond." This was almost always done as a distinct favour on the part of the signer, and generally against his better judgment; he receiving no pecuniary return for his risk, as a rule. It gradually became more and more difficult to get such bonds, and, naturally, the "insurance" feature entered into it, and properly organized companies have taken over most of this work.

Bond (payable) to Bearer. Either an ordinary coupon bond, or a registered (registered as to principle only and with coupons) bond which has been so registered that it is good in the hands of the bearer and may pass from hand to hand without transfer upon the registration books.

Bond Values Tables. First read "Net Return upon the Investment.'

The computations involved therein are based upon the principle that the holder of a bond, bought at a premium, is expected to immediately reinvest a sufficient portion of the money derived from the payment of each coupon, and keep it invested at compound interest until the maturity of the bond, so that the face value of the bond added to the accumulation of reinvested interest will, at the maturity of the bond, be exactly equivalent to the original cost of the same.

To illustrate, let us take a 5% bond having 20 years to run, yielding 4 per cent to the investor at a price of 113.68; that is, $1,136.80 for a $1,000 bond. The investor believes that he will receive 4% upon the purchase price of $1,136.80. As a matter of fact, he receives $25 each 6 months, or $50 yearly. At the maturity of the bond, he will receive, besides the last interest payment, only the principal sum of $1,000. There must be some manner, therefore, of accounting for the $136.80 premium originally paid. This is done through the creation of a sinking fund, as follows:

The investor must reckon 4% upon the total cost price of $1,136.80, which would amount to $22.74 for each 6 months' period. The semi-annual coupon being $25, there is left, therefore, a sum of $2.26, which, if immediately invested, will, at the maturity of the bond, added to the principal sum, together with other amounts similarly deposited twice yearly, equal the purchase price.

In the 20 years which the bond has to run there will be 39 times $2.26 deposited, which will have drawn interest, and one like sum taken at the maturity of the bond, which will have no time to draw interest. 40 times $2.26, however, will be the amount set aside, or $90.40, which is $46.40 less than the actual amount sought. This $46.40 is provided for by the interest—and compounded at the investment rate; in the foregoing case, 4 per cent upon the sums set aside.

It is true that there would be some difficulty in putting this into actual practice, and that the sinking fund plan is seldom carried into effect, but, nevertheless, it does not change the principle that money has a value, so that, if the sums are not set aside and invested, the theory remains the same.

The question naturally arises as to the application of the foregoing principle for determining the yield of a bond bought at a discount. Let us again illustrate: A 5% bond having 20 years to run, if bought at the rate of 88.44, or $884.40 and accrued interest, will net the investor 6%; that is, 6% on the $884.40 invested. As the coupons fall due, he obtains, the same as in the above case, $25 each 6 months or $50 per annum. When the bond matures, he will receive, in addition

to the interest, the full principal sum of $1,000, for which he has paid but $884.40. There is, therefore, a difference here of $115.60, by which amount the purchaser will be apparently enriched at the maturity of his bond. If, however, he wishes to avail himself, in the meantime, of the full 6% net return, to which he is entitled, he must anticipate this difference of $115.60, which may be done in this manner: He is entitled to reckon his income at 6% on the $884.40, the original purchase price, which, for each 6 months, would call for $26.53. The coupon which he detaches from his bond provides for but $25 of this. There is, consequently, the sum of $1.53 which he should receive, from some source, to make his full 6% interest. He may anticipate the $115.60 above referred to by taking from some other fund this $1.53 each 6 months. This represents the amount which, if invested at 6%- the same net return as provided for in the investment-will, at the maturity of the bond, added to the $884.40, just equal $1,000.

Some people of unquestioned skill in actuarial science vigorously disagree with the above reinvestment theory. They maintain that the value of a bond consists merely of the present worth of the principal plus the present worth of an annuity of the coupons. They take the position that each coupon when paid gives the owner exactly what he purchased with the appropriate interest thereon and that the owner may do whatever he likes with the entire proceeds of the coupons. The controversy, however, seems one of nomenclature or explanation rather than about a vital difference. Whichever view one adopts, the formula for Bond Values is the same. All agree upon the correctness of the figures in established Bond Values Tables. The reinvestment theory has the advantage of providing at maturity a sum, available for the remainder man, exactly equal to the original cost of the investment.

Bond Values Between Coupon Maturities. Bond Values Tables for the handling of bonds payable semi-annually show the value of bonds longer than 6 months on coupon date only once in 180 days. At all other times, values in the Tables need some adjustment (this does not apply to Short Term Bond Values Tables which show values and yields every day 1 to 180 days). This does not imply inaccuracy or incompleteness of the Tables; they show exactly what their authors maintain, accuracy at the coupon maturity. It takes 740 large pages for a complete Bond Values Table and it would be utterly impracticable to multiply this by 180.

Bond Values Tables (excepting for short bonds) are based on compounding of interest semi-annually and the mathematically correct value for bonds at a date other than the coupon maturity must be computed in such a way as to give due consideration