for the compounding of interest during the broken period as well as for all the complete coupon periods during the life of the bond. The United States Treasury Department, the Federal Reserve Banks, dealers in Government Bonds, Certificates of Indebtedness and Short Term Equipment Notes compute these broken periods accurately and require them to be so computed on the part of others trading with them. To accomplish this, their accounting departments are required to compute their problems according to the formula for bond values. With the exception of the instances just noted, values of bonds and notes at broken periods longer than 6 months are generally figured by ordinary interpolation, so-called. This method, in spite of its mathematical inaccuracy, became the practice more or less of necessity on account of the large amount of labor and time necessary to figure out ordinary transactions by a mathematical formula. It is common knowledge that the value of a bond for 9 months is not one half the sum of the values for 6 months and 1 year, yet the agreement to treat it as such is the basis of ordinary interpolation. The error resulting from the use of ordinary interpolation always favors the seller, if the exact days are taken into the calculations. This, however, is of no advantage to the dealer since he buys as much as he sells; however, the investor, insurance company, savings bank, or trustee who buys to hold to maturity, makes a positive and permanent loss through this inaccuracy. And ordinary interpolation itself is not applied according to a definite and fixed method. Some dealers, usually by agreement within a given group or territory, disregard odd days over the even months; this plan not only increases the error but it aggravates the lack of uniformity. If an institution purchases $1,000,000 of 5% bonds having a maturity of 15 years, 8 months and 15 days on a 6% basis, it will pay $258 more than the true basis if the invoice is figured by ordinary interpolation and the time treated as exactly 8 months. It will pay $70 less than a true basis in the same transaction assuming that the maturity be treated as 15 years and 9 months. When a trade is made at a price, say 99 or 101 and interest, the price and accrued interest alone are concerned. When, however, securities are sold upon a basis, which is very common in the case of municipal bonds and equipment notes, the yield rate is the prime consideration. Where several propositions to loan money to a municipality or corporation differ either in coupon rate or maturities, or both, the basis is the only true measure of the cost of the loan; it alone determines which of several propositions is the better for the borrower. Variation from accuracy resulting from proportioning the differences, or ordinary interpolation: The minimum error is for dates close to either coupon maturity; and the maximum error is at the mid-point, or three months between coupon dates, which is the average time for all transactions. The discrepancy for an 8 years, 9 months 4% bond on an 8% basis would be: $146.45 on $1,000,000. A high yield produces a relatively higher discrepancy. Practically every commodity which sells upon the market has its standard of weight and measure; every city and town employs an official whose duty it is to see that the weights and measures comply with the standard. Thus it seems highly important that there should be a true measure for bonds and notes, one applicable at all times and in all places, one which will give to both buyer and seller the same effective rate where a transaction is made upon a basis. The agreement to accept ordinary interpolation which gives to the seller something more than the true basis and to the buyer something less than the true basis, does not give to financial transactions a true standard of measure such as is demanded in all mercantile transactions. Incorrect interpolation is no longer necessary. A Table of Factors has recently been published which, co-ordinated with ordinary Bond Tables, gives the value of bonds or notes at any day during their life with mathematical accuracy. The results can be obtained correctly, more quickly than by the old method of incorrect interpolation. Bonus. A premium given for a loan, for a charter or other privilege granted a corporation; an extra dividend to shareholders, or stock thrown in with the sale of bonds or other stock. Bonus Bonds. Bonds issued by a municipality to encourage the building of a railroad or some manufacturing industry. (See "Railroad Aid Bonds.") Books Close. In order that corporations, especially the larger ones, may pay a dividend, it is necessary to fix an interval of one or more day's duration, during which it is possible to make a correct list of the stockholders as shown This by the transfer books, so that the dividends may be sent to the stockholders as of record the date provided for in the vote passed declaring the dividend. It is desirable that no stock. shall be transferred during this process, and it is, therefore, customary for large corporations to "close their books;" that is, their transfer books, during such an interval. period generally precedes shortly the actual payment of dividend. Many corporations are accustomed to give ample notice to stockholders either by mail or by advertising, stating the dates of closing and opening of the books. Books may be closed for other than the above reason. The New York Stock Exchange rules provide that on the day of the closing of the transfer books of a corporation for a dividend upon these shares, all transactions therein for cash shall be "dividend on " up to the time officially designated by the closing for transfers. All transactions on that day be made therein for may cash deliverable the same day rather than on the following day as is the usual custom in order that the dividend due may be obtained by the buyer. All transactions on that day, other than for " cash," shall be "ex-dividend." Should the closing for transfers occur upon a holiday or half holiday observed by the exchange, transactions on the preceding business day other than for "cash " shall be "ex-dividend." The buyer of any shares during the period for which the transfer books may be closed shall be entitled to receive all interest, dividends, rights, and privileges, except voting power, which may pertain to the same during the period. After the closing of the books the delivery on purchases of odd lots" of stocks cannot be made until the books open. In a case where personal liability is attached to a certificate, the seller shall have the right to make delivery by transfer. The right to require receipt or delivery by transfer shall not obtain while the transfer books are closed. (See "Transfer in Blank.") Books Open. (See "Books Close.") Transfers of stocks may again be made. Book Value. The worth of any business or corporation, as shown by its own books. Suppose a corporation of $100,000 capital stock, par value $100, shows, by its books, profits which have not been divided, of $50,000. Taking for granted that the books honestly represent the facts, then there is one half, or 50%, as much profit as capital; therefore, adding the 50% to the $100, par value of the stock, the " book value " would be $150 per share. Boom. An enormous advance in prices; everything going upward midst tremendous enthusiasm, until unreasonable and unnatural levels are reached. Boomers. Those endeavouring to create a "boom," or instrumental in causing one. Boot. See "To Boot." Borrowing Stock. A broker (or any one) borrows stock when he has made a contract to deliver, and the stock which he has sold, for any one of various reasons such as having sold it short cannot be delivered at the time agreed. The usual method of borrowing among stock exchange brokers is as follows: 66 Sharp & Co. sell 1,000 shares of Western Union Telegraph Co. stock at 90; delivery to be made the following day. The customer for whom they have made the sale cannot deliver it for some little time, possibly he has sold it "short." (See Selling Short.") Sharp & Co. ascertain that Brown & Co. have 1,000 shares of the same stock, which they are carrying for a customer; they are borrowing upon this stock at a bank at the rate of, say, $70 a share, which is all the bank wishes to loan upon the stock, at the reigning price of $90. In loaning the stock to Sharp & Co., Brown & Co. would receive $90 a share, which would, therefore, be equivalent to borrowing $20 a share more upon the stock than they could in any other way; giving Brown & Co. that much more available cash in their business and for that reason they are willing to loan the stock. The latter must pay Sharp & Co. interest on the money, which usually is a little more favourable to them than the ruling market price. This is called the "loaning rate on stocks." The loaning rate varies greatly for any given stock with the demand to borrow it. Sometimes no interest is paid (the rate is quoted "flat") on account of a great demand; and again the call to borrow a certain stock may be so great as to cause not only the elimination of the question of interest, but the lender may be able to exact a premium from the borrower. This premium is expressed in percentage as 1-32% (per day). The lender of a stock is entitled to all dividends declared upon it during the time of the loan. Sharp & Co. would be obliged, each day, if there were any change in the quotations of Western Union stock, to adjust the difference with Brown & Co.; that is, we will suppose that Western Union stock, on the day after the loan is made to Sharp & Co., advances to 95; Sharp & Co. would be obliged to pay Brown & Co. $5 a share more on the stock; perhaps, however, it declined to 88. In that event Brown & Co. would have to pay $2 per share to Sharp & Co. In other words, the difference between the two firms must always be adjusted in accordance with the price ruling. This protects the original lender of the stock and enables him to buy the stock in, if necessary, at any time, without loss, and does not make him dependent upon Sharp & Co.'s ability to deliver the stock in case called upon so to do by the lender. Boston Shilling. See "Pine Tree Money." Bottom. "The bottom has been reached;" meaning that prices will not go lower, or that depressed business conditions have reached their lowest ebb, and, in either case, an upward tendency is next expected. Bottom Has Dropped Out of. If the bottom drops out of a pail of milk, it is about as bad a catastrophe as could happen to the milk. When the "bottom drops out of the market," a similar idea is conveyed regarding prices; namely, that they have gone downward in about as bad a way as it is possible to conceive, and that everything has a very discouraging appearance. he Bottom Prices. The lowest prices. The expression got in at the bottom" means that nobody obtained the security at a less price than the person referred to. Bottomry. A loan which has a vessel pledged as security for its payment. Bottomry Bond. The contract given for the securing of a vessel to the lender as a pledge for the payment of the loan. (See "Bottomry.") Bourse. The name applies to stock exchanges in Continental Europe. It should always be written with a capital "B"; if written with a small "b," as "la bourse," it means "the purse"; with a capital "B," it means "the exchange." Generally speaking, the "Bourse may mean either the market place for the sale of securities, the meeting place for bankers, bill-brokers or even merchants to transact their business, or the particular place where some specific kind of merchandise, such as grains, cotton, etc., are bought and sold. The Paris "Bourse "" was founded in 1726. B. Q. Chicago, Burlington & Quincy R. R. Co. 99 Brassage. (Read "Seigniorage.") "Brassage differs from "seigniorage" in the latter indicating the difference between the commercial value of the metal in the coin, and its face value, while "brassage" is a charge made for coining bullion, usually based upon the approximate cost of accomplishing the same. Break. "Break in the market: " a sudden and considerable decline in prices. |