EXERCISE 72

PROBLEMS WITHOUT NUMBERS

1. If you know the newspaper quotation on a certain stock, how do you find the cost of a share?

2. If a certain stock is quoted at a specified amount above par, how do you find the cost of a share?

3. About what would have to be the rate of dividend on a railroad stock to have it at par? to have it below par?

4. If you own some railroad stock and should sell it through a broker and buy it back at the same quoted price, how would you compute your loss?

5. If you own some stock and wish to sell it, and know the market price, how much will you receive for the stock?

6. Knowing the capital and the net earnings of a company, and the amount to be carried to surplus, how do you find the rate of dividend?

7. Knowing the quotation on a certain stock, and the rate of dividend, how do you find the rate of income on the amount invested?

8. How do you find the income on a certain number of bonds of a given par value, the rate being known?

9. How do you find the income on a certain number of bonds of a given par value, the time they have to run and the rate being known?

10. If the rate of interest on some bonds is known, and also the amount of income, how do you find the par value of the bonds?

11. What is the difference between preferred stock and common stock? between common stock and a bond? How do you decide which is best for an investment?

CHAPTER VI

BANKING

144. Banks. A corporation authorized by law to receive and loan money and to perform certain other financial operations is called a bank.

Formerly there were many private banks, but now banks are usually corporations.

This picture represents the interior of a city bank. The clerk who receives money is called the receiving teller; the clerk who pays out money is called the paying teller.

145. Savings Banks. The banks where people keep their savings, receiving a low rate of interest, are carefully guarded by the laws of most of the states. These banks are called savings banks.

Nearly 9,000,000 persons in the United States have deposits in savings banks. These deposits amount in all to nearly $4,000,000,000.

146. Interest in Savings Banks. Usually savings banks pay interest semiannually, adding this to the principal on deposit. This is, therefore, a case of compound interest. The following is a specimen account at a bank paying 2% every six months (4% a year, payable semiannually), on the smallest balance on deposit during the period.

Here the smallest balance during the first interest period was $550.50. Interest is computed on the dollars only, the cents being neglected. At 2% the interest on $550 is $11. In the second period the smallest balance is $561.50, the interest being $11.22.

Some banks allow interest from the first of each month; others from the first of each quarter; others, as above, from the first of each half year. The interest is computed on the smallest balance on hand between this day and the next interest day, and is usually added to the principal every half year.

In the above example, if the interest period had been 3 months and the interest had been credited every 6 months, then the interest would have been :

First quarter,

1% of $555 = $5.55.
Second quarter, 1% of $550 =
= 5.50.
5.61.

Third quarter, 1% of $561=

Credit $11.05.

Fourth quarter, 1% of $561 = 5.61. Credit $11.22.

In this case, therefore, the difference in interest would have been only five cents.

EXERCISE 73

In the following, find the balance due on the last date, interest 2% every six months on the smallest balance on deposit during six months preceding Jan. 1 and July 1:

1. Deposits: Jan. 1, 1910, $750; Feb. 3, $425; June 1, $37.50. Payments: Mar. 7, $230; May 6, $26.75. Balance, July 1, 1910.

2. Deposits: Jan. 1, 1910, $675.50; Mar. 2, $923.75; Sept. 5, $327.60. Payments: Feb. 7, $327.40; Oct. 10, $750. Balance, Jan. 1, 1911.

3. Deposits: Dec. 31, 1910, $500; Feb. 2, 1911, $300; Mar. 16, $250; Aug. 1, $50; Oct. 5, $125. Payments: Mar. 6, 1911, $325; May 11, $275; Sept. 12, $25; Nov. 15, $100. Balance, Jan. 1, 1912.

In the following, find the balance due on the last date, interest being 1% every three months on the smallest balance on deposit during the three months preceding Jan. 1, Apr. 1, July 1, and Oct. 1, and all interest being payable on Jan. 1 and July 1.

4. Deposits: Mar. 1, 1910, $200; June 3, $675; July 1, $350. Payments: Mar. 8, $50; May 17, $60; July 8, $50. Balance, Jan. 1, 1911.

5. Deposits: Apr. 1, 1911, $375; May 25, $460; June 14, $380; Aug. 8, $750. Payments: May 3, $75; Sept. 6, $50; Nov. 8, $130; Feb. 1, 1912, $200. Balance, July 1, 1912.

6. A man on July 1 deposited $2500 in a savings bank and left it for 3 years. The rate of interest was 4% a year and the interest was added to the principal semiannually. How much less interest did he receive than he would have received had he loaned the money at 5% simple interest?

147. Commercial Banks. Most banks receive money on deposit and pay it out on written orders, allowing no interest. Such banks are called commercial banks.

They are also known as banks of deposit. They afford a safe place for keeping money. They make their profit by loaning money. Savings banks are usually allowed to loan only on real estate or certain specified bonds of high grade as security, but commercial banks loan on promissory notes. Commercial banks also transmit money from one place to another, and make collections, as described later.

148. Depositing Money. When a reliable person wishes to open an account with a bank he begins by depositing some money. In depositing money a deposit slip is filled out each time, as here shown.

The money and deposit slip are then presented to the receiving teller or to the cashier, together with a bank book in which the teller or cashier enters the amount deposited. Many banks do not insist on having inserted in a deposit slip the name of the bank on which a check is drawn.