BOND 



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BOND 



and bonds arc the first obligations of a com- 

 pany. No dividends can be paid on eithor 

 common or preferred stock until the interest 

 on the outstanding bonds has been earned and 

 paid. In good business years the capital stock 

 of a company may earn large dividends, but 

 if business is poor there may be no dividends. 

 Bonds pay a smaller, fixed rate of interest, but 

 a company must be close to bankruptcy if it 

 cannot pay interest on its bonds. If the bond 

 interest is not paid it is said to be defaulted. 

 To say which class of bonds is the safest is 

 a difficult, if not impossible, task. As a rule, 

 the bonds of national governments are the 

 safest, and for that reason pay the lowest rate 

 of interest. The bonds of Haiti, Nicaragua or 

 any other country in which the government 

 is unstable, are unsafe; they have occasion- 

 ally been repudiated, and may be repudiated 

 fain. The bonds of states, provinces, coun- 

 ties, townships and school districts form a 

 second class, normally just as safe as the first 

 class. Third in preference should come the 

 bonds issued by large corporations, whose con- 

 servative management is known and whose 

 semi-public character makes secret manipula- 

 tion practically impossible. Such corporations 

 include the large railway systems and most 

 public sen-ice corporations. Their bonds are 

 usually listed on the stock exchange (which 

 see), but the market prices must not always 

 be accepted as a fair index of the value of the 

 bond. A fourth class of bonds would include 

 those issued by smaller companies, many of 

 which are probably as sound financially as the 

 larger ones. Independent investigation, how- 

 ever, is advisable in every case. But if the 

 intending investor is not in a position to learn 

 the facts for himself he should at least ask the 

 advice of a reputable banker or broker. 



Market Prices. Many bond issues, partic- 

 ularly if the issue or the company is a large 

 one, are listed on the stock exchange. In this 

 case the quotations of sales furnish a fairly 

 adequate test of the value of a bond. Bonds 

 are quoted on a basis of $100 par value. For 

 example, if the quotation is 97%, this means 

 that a bond whose face value is $100 is being 

 sold for $97.50. If the market price falls far be- 

 low par it is a fairly sure sign that the bond 

 is not a good one for the conservative investor 

 i to hold. It is customary in the market to des- 

 ignate each bond issue by a short abbreviation 

 which identifies the bond; for example, Beth- 

 lehem Steel 1st 5s, means first mortgage bonds, 

 drawing five per cent interest, issued by the 



Bethlehem Steel Company; Panama 2s 36 

 means a bond drawing two per cent interest, 

 principal due in 1936, issued by the Republic 

 of Panama. If the quotation reads Panama 

 2s '36, 99 bid, it means that somebody has 

 offered $99 for a $100 bond issued by Panama 

 and due in 1936. 



Other Meanings of the Word "Bond." The 

 words bond, bind and band all come from the 

 same root, and originally had the same mean- 

 ing, that is, a fastening. In a figurative sense 

 there was a fastening between two people who 

 made any kind of a contract; and in law to- 

 day a bond is any contract under seal by which 

 a person agrees to do or not to do a thing. 

 More specifically, a bond involves the pay- 

 ment of money; any other contract is usually 

 called a covenant. 



Bonds may be simple or conditional. A sim- 

 ple bond is a definite promise to pay. On the 

 other hand, a bond may involve a condition. 

 A bank cashier, for example, furnishes a bond 

 to his employers; that is, an individual or a 

 company agrees to make good the bank's loss 

 if the cashier steals any of its money. A 

 bondsman may agree to pay the court a cer- 

 tain amount if some accused prisoner is not on 

 hand when he is wanted; instead of staying in 

 jail the prisoner may then be temporarily re- 

 leased. He is said to be out on bail (which 

 see), and the bond given to insure his appear- 

 ance is a bail bond. Goods which are liable 

 to customs duties or internal revenue taxes are 

 said to be in bond when they are placed in 

 storage under a bond that they will not be 

 removed until the duty or tax on them is 

 paid. This is the meaning of the phrases 

 ''bottled in bond" and "imported in bond." 

 Such storage houses are called bonded ware- 

 houses. W.F.Z. 



Related Subjects. The following topics will 

 be found helpful by the reader interested in 

 bonds : 



Bail Interest 



Bonded Warehouse Mortgage 



Commercial Paper Stock Exchange 



BOND, SIR ROBERT (1857- ), a Newfound- 

 land statesman, Premier from 1900 to 1909, 

 and for many years the leading Liberal in the 

 political life of that colony. He was educated 

 for the bar, but the call of politics was stronger 

 than that of the law. In 1882 he was elected 

 to the Newfoundland Assembly, and in two 

 years so established his leadership that he was 

 chosen Speaker. From 1889 to 1897 he was 

 Colonial Secretary in the executive council, or 

 Cabinet. 



