BOND 



807 



BOND 



Collace, Perthshire, Scotland, and was edu- 

 cated at the universities of Glasgow, Tubingen 

 and Leipzig and at Balliol College, Oxford. 

 From 1881 to 1895 he was junior examiner in 

 H. M. Civil Service Commission, and from 

 1895 to 1907 senior examiner. He went to 

 Canada in 1907 to assume direction of the 

 royal mint, established in that year. Dr. 

 Bonar made his first contribution to economic 

 literature in 1881, with a book entitled Par- 

 son Malthus. Of his numerous later books 

 the best are Malthus and His Work; Philoso- 

 phy and Political Economy; Political Econ- 

 omy, an elementary treatise; and Disturbing 

 Elements in Political Economy. 



BOND, a word of many meanings, but most 

 commonly applied to a special form of con- 

 tract a written or printed evidence of debt 

 issued by a government or a corporation, 

 usually for the purpose of borrowing money. 

 The name is given to any obligations issued 

 in a group and bearing a fixed rate of interest, 

 provided they are under seal. If the evidence 

 of debt is merely a promise, not under seal, 

 it is a promissory note, not a bond. 



Mortgage and Debenture Bonds. Bonds are 

 of two kinds, mortgage and debenture. A 

 mortgage bond, as the name indicates, is a 

 direct lien on the assets of the company, or 

 on a specially designated part of the assets. 

 A railroad, for example, may issue general 

 mortgage bonds based on its entire assets, or 

 it may issue bonds whose security is only a 

 branch line or a certain division. A debenture 

 bond, on the other hand, is merely a promis- 

 sory note under seal, and has no character- 

 istics of a mortgage. If the corporation fails 

 to pay the interest or principal, the holders 

 of mortgage bonds may bring foreclosure suit; 

 the holders of debenture bonds are merely 

 creditors who may share in the assets. 



Theoretically and legally there is no limit 

 to the number of bond issues which a corpora- 

 tion may issue. It may have first and second 

 mortgage bonds, or even third mortgage bonds. 

 It may have all of these and also several issues 

 of debenture bonds. Mortgage bonds are usu- 

 ally for longer periods, varying from twenty 

 to ninety-nine years, and bring a moderate 

 return four to six per cent is the average. 

 Debenture bonds, being merely promissory 

 notes, require fewer legal preliminaries, and 

 are usually issued when a corporation desires 

 to borrow money for a short period of years. 

 The rate of interest on such short-time loans 

 is usually larger than on long-time mortgages. 



Bonds issued by governments are not based 

 on a mortgage as security, but merely on the 

 apparent ability and intention of the govern- 

 ment to repay their face value. If the gov- 

 ernment of the United States or of Canada 

 should refuse to redeem its bonds, that is, 

 should repudiate them, the holders would have 

 no redress. In the past, a number of the states 

 have repudiated their bonded debts, or have 

 compromised with their creditors. While repu- 

 diation is still possible, in the United States and 

 Canada the issue of bonds is so carefully con- 

 trolled by statute that the bonds of a state or 

 province, or any of its divisions, are as safe 

 as any investment ever can be. 



Registered and Coupon Bonds. Advertise- 

 ments of bond issues frequently state that 

 "these bonds are sold with the privilege of 

 registry." This means that the owner's name, 

 the serial number of the bonds and the total 

 amount held by each owner are registered on 

 the company's books. The interest and prin- 

 cipal are payable only to the person whose 

 name is registered; in this way the holder is 

 protected from loss or theft. Registered bonds 

 may be transferred by giving proper notice to 

 the secretary, who makes the necessary changes 

 in the register. 



Coupon bonds have certificates of interest, 

 or coupons, attached to the bond and giving 

 the exact amounts of interest due, and dates 

 when due. These coupons are cut off on the 

 interest date and are presented for payment. 

 Any bank, on receipt of a coupon, will usually 

 cash the coupon for its customers, and will in 

 turn collect from the corporation which issued 

 the bonds. 



The difference between registered and cou- 

 pon bonds is merely in the form. It does not 

 in any way affect the character of the security. 

 A mortgage bond may be either registered or 

 coupon; so, too, may a debenture bond. 



Bonds as Investments. The popularity of 

 bonds is easily explained. In the first place 

 they give a corporation an opportunity to bor- 

 row money without giving outsiders a voice in 

 the management, for the owner of a bond does 

 not become a stockholder, but merely a creditor. 

 If the corporation is being mismanaged, the 

 bond-holders have the power to protect their 

 interests through legal processes. In the sec- 

 ond place the safety of bonds appeals to in- 

 vestors. Not all bonds, of course, are safe; 

 the bonds of a company which has no assets 

 are as worthless as its stock. In all cases, how- 

 ever, the bond-holders are preferred creditors, 



