Exercise 93

In buying stocks and bonds the brokerage, which is % of the par value, is added to the market price to obtain the total cost. When stocks and bonds are sold, the brokerage is subtracted from the market price to obtain the amount received by the owners.

Use the quotations on page 198 in the first 13 exercises. 1. What is the cost of 20 shares of American Express? SOLUTION. $1312+83=$1317, the total cost of one share including brokerage.

20 X$131.875 = $2637.50, cost of 20 shares.

2. Find the cost of 40 shares of Illinois Central.

3. Find the cost of 10 shares of Pullman Car Company and 30 shares of the Massachusetts Electric Railway.

4. What is received from the sale of 50 shares of United States Steel, common?

HINT. Remember to subtract the brokerage.

5. What is received from the sale of 25 shares of the Standard Oil Company of Indiana?

6. What is received from the sale of $4000 of United States 4s, coupon?

HINT. This means that the par value of the bonds sold is $4000. 7. Can you suggest a reason why Illinois Central stock is higher than Missouri Pacific?

8. Which is quoted higher, United States Steel, common, or United States Steel, preferred? Bethlehem Steel, common, or Bethlehem Steel, preferred? Do you see any reason why common stock should be lower than preferred in one case and higher in the other?

9. How much must you pay for one $100 Rock Island bond? How much interest does it yield annually? What rate of interest is received on the money invested?

10. Find the rate of interest on the investment for each kind of bond quoted. Arrange the results in order, putting the highest first. Which kind pays the highest rate of interest on the investment? Which pays the lowest?

11. What rate of interest is charged for money in your vicinity? How many of the bonds pay as good a rate of interest on the investment?

12. Which stock is probably paying a higher rate of dividend, American Express or Pullman Car Company?

13. Can you suggest a reason for there being a difference in the prices of Lake Shore 4s and Rock Island 4s? Is there a difference in the income? How many dollars interest is received annually from a $100 bond in each case?

14. A buys 5% bonds at 1247. What rate of interest is received on the money invested?

15. Bonds bought at 1197 pay 5% on the investment. What rate of interest do they pay on the par value?

16. What is paid for 3% bonds that pay 4% on the investment?

17. A invests in stock which pays 5% dividends. How many shares must he buy to secure an annual income of $250? What is the par value of these shares? What will they cost at 111g?

18. How much must be invested in Liberty Bonds, 41%, bought at 96, to secure an annual income of $212.50?

19. Which is the better investment, to pay $225 for land that rents for $10 an acre, or $75 an acre for land that rents for $3 an acre? What do you understand better investment to mean here?

20. Which is better, to lend money at 5% interest, or to invest in Rock Island 4s as quoted?

21. How much is gained in buying 40 shares of stock at 89 and selling it at 914?

22. Find the gain or loss in buying 80 shares of stock at 93 and selling it at 934.

23. Stock is bought at 623. It is sold the same day at a gain of $2.25 a share. What is the selling price?

24. Find the total brokerage for selling 20 shares of stock at 523, 25 shares at 1234, and 60 shares at 1021.

25. How many shares of Bethlehem Steel, preferred, can be bought for $5000? What surplus remains?

26. Name two things upon which the prices of stocks and bonds depend.

27. State differences between stocks and bonds.

28. A newspaper report of the Winchester Arms Company during one year of the World War showed net profits of $4,652,094 on a capital of $1,000,000. The net profits were what per cent of the par value of the stock? During the year the stock sold for $3000 for a $100 share. That price is what per cent of the par value? The net profits on one share were what per cent of the par value?

29. In one of its annual yearbooks the Ætna Life Insurance Company quotes in the list of stock owned, the following:

Find the market value of one share of each kind of stock, assuming the par value to be $100. Find the amount of income from each. Find the rate of income on the market value for each. Which is the best investment, based on the rate of income?

30. During the first two years following the outbreak of

the World War the following stocks had the given variations in price :

If a man had bought 10 shares of each of these stocks at the lowest price and had sold at the highest price, what would have been his gain, allowing 4% brokerage for buying and 1% for selling? Find for each kind of stock what per cent the gain would have been of the cost.

31. During a recent year the Chicago, Milwaukee and St. Paul Railway earned 6.75% dividends on the common stock. The par value of the common stock was $117,411,300. Find the total dividends earned.

32. Liberty Bonds, bearing 44% interest, can be bought at 937, brokerage %. They are due in 10 years, when they will be cashed at par. What will be the total profit on a one hundred dollar bond bought now and held for 10 years? This is equivalent to what annual rate of interest on the cost of the bond?

33. Bonds due in 3 years, bearing 6% interest, can be bought for 985, brokerage %. What will be the total profit on a one hundred dollar bond bought now and held till due? This is equivalent to what rate of interest on the cost of the bond?

CHAPTER XII

EXCHANGE

96. Paying bills at a distance. If you wish to pay a bill in a distant city, you may use any of these methods:

Send (a) money; (b) check; (c) bank draft; (d) post office money order; (e) express money order; (f) telegraph money order.

In choosing one of these methods one should consider its safety, its cost for both sender and receiver, and its convenience for both sender and receiver. The convenience of a method depends mainly upon the access of the sender and receiver to a bank, post office, or express office.

(a) It is seldom desirable to send the money. Coins and bills inclosed in an envelope are likely to be lost. Sending money by express or registered letter is expensive.

(b) If you have a bank account, it costs you nothing to send a check, and that is usually the most convenient way to pay a bill. It may cost the receiver of the check something to have the check cashed. This makes it necessary sometimes to include a small amount extra, say five or ten cents, to pay for cashing the check. The fee paid for having the check cashed is called exchange.

The form and uses of checks have been discussed on pages 168 and 169.

(c) Bank drafts. Banks have deposits in other banks in large cities. This money is drawn out by bank drafts, just as an individual draws money from a bank by a check.

If John Martin in Greencastle, Indiana, wishes to pay L. S. Ayres and Company in Indianapolis $12.50, he may go to a bank in Greencastle and get a draft such as the following: