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tion that are set aside to meet possible losses, for im provements, etc.
A dividend is that part of the net earnings of the corporation that is distributed among the stockholders.
The gross earnings of a corporation are its total receipts from all sources.
The net earnings are the profits remaining when all expenses, losses, interest and debts due, are paid.
An assessment is a sum levied proportionate to stock held by stockholders, to help out the business when it is not prospering, or when more money is needed to carry it on. It is levied as SO many dollars on each share at its par value.
The directors are those shareholders elected by all to manage the affairs of the corporation.
A bond is, in form, a carefully drawn, interestbearing, promissory note. Ordinarily, it runs for a period of years with interest often payable semi-annually. It is more formal than the ordinary promissory note. Bonds are usually issued by national, state, county, or local governments, or by corporations, when they wish to raise large sums of money for immediate use.
Interest coupons are notes for the interest due on the bond from time to time. Each note is for the interest of one interval of time. They are attached to the margin of the bond.
A ten-year bond for $500, with interest payable annually, has ten coupons in its margin; if interest is payable semi-annually it has 20 coupons in the margin, etc.
If a bond for $500 is made at 4%, interest payable annually, each coupon would call for $20 interest.
The coupons are usually detached as they become due and the interest collected.
The terms above par, par value, below par, etc. apply also to bonds.
Coupon bonds are usually made payable to bearer. A registered bond is made payable to order, and is recorded with the owner's name on the books of the corporation. It is transferable only by indorsement.
Difference between Stocks and Bonds.
Many books present the subject without distinguishing stocks from bonds. Remember the following facts about each and you will have little trouble:
Bonds-A bond runs for a specified time. It bears a specified interest, and is an absolute promise to pay the face of it at maturity. It matures at a definite time, and at that time the holder is paid its face value and no more, by the organization that issued it, unless such organization is insolvent, or has repudiated its debts.
Stocks-A certificate of stock is no promise to pay. It simply shows that the holder owns as much stock in the corporation as is shown by the face of the certificate. It bears no interest and has no date of maturity.
The interest returns of the bond holder are certain and definite. The returns of the stockholder, dividends, are uncertain and depend on the profits of the business.
Consequently, no table can be arranged to show at what rate stocks can be bought to yield a definite return; but with bonds, tables may be made which show at a glance what the return will be from a purchase made at any rate.
Note. Be careful of what your arithmetic says on this subject.
PREMIUM AND DISCOUNT ON BONDS.
If a bond bears a rate of interest higher than what the investor expected to realize, it sells at a premium, and the longer it has to run, the higher the premium.
If the rate is lower than the investor expected to make, the bond sells at a discount, and the longer it has to run, the greater the discount.
The longer a bond has to run the more a purhaser can afford to pay for it, as will appear from the problems given later.
Business men pay a higher price for bonds with interest payable semi-annually, than for those with interest payable annually. Most bonds bear interest payable semi-annually; and all bond tables are based on semi-annual interest. Some bonds have interest payments quarterly.
PROBLEMS IN STOCKS.
Five men, A, B, C, D, and E combined to build and operate a cotton mill. $800000 capital was needed. They formed a stock company and divided the capital stock into 8000 shares of $100 each. They took shares as follows: A. 2000 shares; B, 2000 shares; C, 3000 shares; D, 500 shares, and E, 500 shares. No dividend was declared the first year, but at the end of the second year there were $64000 in profits, and a dividend was declared. What per cent was the dividend and what did each receive as his share?
WORK AND EXPLANATION :
Query? $64000 is what % of $800000?
NOTE-At this stage of his suck minute analysis as earlier. to deal with larger concepts.
study, the pupil does not need His mind should be ready now
The face value of A's 2000 shares is 2000 × $100 =
He receives 8% of $200000 = $16000.
The face value of B's 2000 shares is 2000 × $100 =
He receives 8% of $200000 = $16000.
The face value of C's 3000 shares is 3000 x $100 = $300000.
He receives 8% of $300000
The face value of D's 500 shares and E's 500 shares, respectively, is 500 × $100 = $50000. Each receives 8% of $50000 = $4000.
They all receive the sum of $16000, $16000, $24,000, and $8000, or $64000, the whole of the profits. The form below is equally good. For quick work
it is to be preferred.
At 8% 1 share of stock yields $8.
A's 2000 shares yield 2000 x $8 = $16000.
For the company named in the preceding problem, there was little profit at the end of the third year and C bought the stock of B and D at a premium of 3%. What did he pay for it?
WORK AND EXPLANATION:
B's stock at par is worth 2000 x $100 = $200000.
B's and D's stock at par is worth C pays for it 3% premium, or 103 per cent, of its par value. 103% of $250000 = $257500.
Miss Seeber owns twenty shares in a company whose capital stock is $100000, shares $100 each.