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STOCKS AND BONDS.
264. Some kinds of business require so much capital that many persons combine to provide the necessary money. Such a combination of men organized under the laws of a State, the capital being divided into shares, is known as a corporation, or stock-company. Those who own the shares are called stock-holders. The stock-holders elect from their own number certain men to manage the business. These managers are called directors.
265. The nominal value of a share is its face value; that is, the sum named on its face. Large corporations, usually, though not always, divide their capital into $100 shares.
If the business is prosperous, shares may sell on the market for more than their nominal value. The stock is then said to be "above par," or "at a premium."
If the business does not prosper, the shares may sell on the market for less than their nominal value. The stock is then said to be "belowpar," or "at a discount."
266. If the business is profitable, a part or all of the earnings is periodically divided among the stock-holders. The sum divided is called a dividend.
Dividends are always reckoned on the nominal or par value of the stock. If a corporation declares a 2% dividend, it pays to each stock-holder a sum equal to 1% of the nominal value of the stock which he owns.
267. The kinds of business which are usually conducted by corporations, are: The mining of coal, silver, gold, etc.; the operation of gas works, railroads, large manufacturing establishments of all kinds, creameries, etc.
1. Examine the above certificate. What part of the entire stock of the Werner School Book Company would the owner of one hundred shares have?
2. A 3% dividend would require how much money from the treasury of the Company? How much money should the owner of one hundred shares receive?
3. If a 4% dividend is declared how much money should the owner of seven hundred and fifty shares of stock receive as his share of the dividend?
268. History Of A Stock Company.
The farmers of a certain community agreed to combine in the building and management of a creamery. It was determined that a capital of $5000 was necessary. This was divided into 50 shares of $100 each. Men then came forward and contributed as follows .
A took 5 shares and paid in $500. B took 3 shares and paid in $300. C took 6 shares and paid in $600. D took 4 shares and paid in $400. E took 7 shares and paid in $700. F took 2 shares and paid in $200. G took 10 shares and paid in $1000. H, I, J, K, L, M, N, O, P, Q, R, S, and T took 1 share each and paid in $100 each.
(a) At the end of the first year the directors declared an 8 % dividend. How much did A receive? B? C? K?
(b) What was the entire amount of the money divided among the stock-holders at the end of the first year?
(c) Soon after this dividend was paid, A sold his stock to X at a premium of 10%. How much did A receive for his stock?
(d) At the end of the second year the profits were found to be comparatively small, and the directors could pay a dividend of only 3%. How much did X receive? B? C? K?
(e) What was the entire amount of the money divided among the stock-holders at the end of the second year?
(f) Soon after this dividend was paid, B, C, D, E, and F sold their stock to Y at a discount of 10%. How much did this stock cost Y?
History Of A Stock Company—Continued.
(g) At the end of the third year, the profits were so small that no dividend was declared. The stock-holders became disheartened and many of them offered to sell their stock at a large discount. Z appeared in the market and bought at "500 on the dollar" all the stock of the company except that owned by X and Y. How much did this stock cost Z?
(h) At the end of the fourth year, the directors, X, Y, and Z, declared a 10% dividend. How much money was divided and how much did each receive?
(i) Before the close of the fifth year, the property burned and the lot upon which it stood was sold. After the insurance money had been received, the book accounts collected, and all debts paid, there remained in the treasury of the company $4350. How much of this money should each stock-holder, X, Y, and Z, receive?
(j) Did this creamery enterprise prove a good investment forX? ForY? ForZ? For A? ForB? For M?
1. The directors of a company whose capital is $50000 determined to distribute among the stock-holders $2500 of profits. (a) A dividend of what per cent shall be declared? (b) How much will a man receive who owns 15 100-dollar shares?
2. A company whose capital is $75000 pays a dividend of 3%. (a) How much money is divided among the stockholders?
3. Mr. Steele owns 20 shares ($100) in the C.,B.&Q.R.R. He receives as his part of a certain dividend $110. What is the per cent of the dividend?
269. A bond is a very formal promissory note given by a government or other corporate body, as a railway or a gas company, for money borrowed. Bonds usually have attached to them small certificates called coupons. These are really little notes for the interest that will be due at different times Thus, a 10-year bond for $1000 with interest at 6% payable semi-annually may have 20 coupons attached, each calling for $30 of interest.
270. Money invested in bonds yields a specified income; but the income from money invested in stocks depends upon the profits of the company.
271. Bonds, like stocks, are sometimes sold for more than their face value. They are then said to be " above par" or "at a premium." Like stocks, too, they are sometimes "below par" or " at a discount."
1. What is the semi-annual interest on two 1000-dollar U. S. 5% bonds?
2. What sum should be named on each coupon of a 1000dollar city bond if the interest is payable annually at the rate of 7%?
3. To raise the money to build a court-house, a certain county issued $50000 worth of 6% ten-year bonds. These sold upon the market at 2% premium, (a) How much money was received for the bonds? (b) How much did A pay, who bought three 1000-dollar bonds? (c) If the interest was payable semi-annually, how much should A receive each 6 months on this investment?
4. Has the county or city in which you live any "bonded indebtedness"? If so, how much, and what is the rate of interest?