The Hawaiian star. [volume] (Honolulu [Oahu]) 1893-1912, 1910-04-11

gage fours, which brought ninety-two
and one-half and declined to ninety,
and the Delaware and Hudson tours
and the Chicago, Milwaukee and st.
Paul tours, which had only an indif-
ferent market.
SHOULD you SELL YOUR FoURs?
The investor now wants bond that
pays a face interest of five per cent.
that sells around par, and that not
only yields him around five per cent.
but pays him five per cent each year
during the life of the bond. 1t is
with this type of bonds that this ar
ticle is mainly concerned.
You have only to ask any promin-
ent investment banker today in order
to find out that daily inquiries are
coming in from investors who have
four per cent bonds and who want to
exchange them for five per cent.
bonds. Here is a kind of trading
that every investor should know about
especially one whom the high cost of
living is pinching. But in order TO
avail himself of what seems an OPP
portunity to increase his income he
is liable to sacrifice the profit of a
we'll established investment and
here is the danger:
Let us assume that a man owns
five one Thousand dollar four per
cent bonds for which he has paid
ninety. They have ten years to run.
This means that the yield on this
Investment is $50 per cent, provid-
ing he keeps them to maturity The
annual income from the bonds, how
ever, is 5000. This man has a mo-
| derate income and he sees five per
cent bonds selling around par. Shall
he sell his tours and buy the tives?
! At first glance, it seems a good pro-
| position, but let us see how it would
work out Assuming that the tours
are selling at ninety, they would rea-
lie approximately $4,000. Yet it
would take $4,000 to buy the fives, or
just $500 more, which would be the
entire first years income from the
fives. Now look at the question of
yields. The man would lose his yield
, of 5 80 per cent on the original money
employed and would get in exchange
yield of five per cent.
1t is at this point that an old in
vestment fact, often repeated here.
may be emphasized again, apd it is
| well to keep it in mind in the present
| situation. Yield is the return to the
! investor on the amount Of money in
vested, and it is figured out through
bond tables, on the assumption that
the bonds are held to maturity. Yield
is often confused with bond income.
Income is the amount that the bonds
pay each year as represented by their
face interest rate.
| DuI IllCAS clS many INSTANCES 'NN'NN'
where it is wise and profitable for the
investor to exchange his fours for
fives, and increase his income &C
cordingly. This is in cases where
his four per cent bond, if it is of the
very highest quality, is selling around
par There is no reason why a bust
ness man should pay an excessive
price for security. What he wants is
a good safe bond. Therefore, he can
exchange his four per cent iron-clad
security for a railroad security ample
for all his needs. Yet do not lose
sight of this fact which is worth tuck
ing away among the investment ak
IONS. When you ascend the scale of
income you make some sacrifice CT
security or marketability. The high
err the yield the bigger the risk. This
is true of every kind of employment
of money. But it does not mean that
the we'll selected, five ner cent bond
exchanged for a four is not safe.