The Richmond Virginian. (Richmond, Va.) 1910-1920, 1920-04-21
they are exch1ngpable move up,
Thus when in 1905 Union Pacific stock

they are exchangeable move up.
Thus when in 1905 Union Pacific stock
was selling for $50 ~ the First Lien
Convertibies previously mentioned
sold IN to 100 Ia; this is the story
Of every such bond when the stock
passes the figure at which CONVEX
sion becomes profitable.
\ word as to the method Of calcu-
latiug This figure may prove interest
Ing The simplest case is where the
conversion is to be par for par"--in
other words 500 par value of stock
for each 500 bond. Under these con
ditions conversion plainly becomes
profitable when the price of the stock
pa sses that of the bond; purchaser
OF ST Paul 4 is due 1882, Tor IN
stance, at the present price around
6s would profit by any rise OF the
stock above that price. when
bond rs convertible into stock at some
figure other than par it is necessary To
multiply the price of the bond by TINS
conversion figure III order 10 deter
mine when conversion becomes pro''-
able. Thus Chesa peake and ohio Sc
cured IS. now selling around -, are
convertible into common stock at so,
or at the rate of ten shares par $500
each) of stock for $500 in bonds, 10
per cent of 80 is approximately 81, so
the purchaser would profit by a rise
OF Chesapeake and Ohio common be
yond that point. Similarly Delaware
and Hudson IS are convertible into
common stock at $50; since the bonds
are now quoted around So Pur-
chaser could profit If the stock rose
above %.
Plainly. the elimination Of specuia-
tive risk. which has Keen mentioned
as a fe4 ure Of we'll chosen convert
thIe issues il obtained only by pur-
chasing such bonds around their true
il vestment level--at or near the
ptice. that is. where secur4y and IN
ccrse make them a deSirab bic purchase
even atart from the possibility OF
Speculative profit. Union Pacific first
lien convertible As, at 100, Tor tn
stance. were held UP only by the cur
rent quotation for the stock. and
we're certain 10 decline with any fall
in The latter. Purchase Of the bonds
al that price was pure speculation,
On the other hand, a purchaser of
%pr5oik and Western 6s due la@a.
convertible into common stock at par.
at he present price around 80 IL,
has "A conservative investment in
sirof.g railroad bonds Welding over
per cent, aud can profit through any
rise exceeding points in the stock,
which is row selling above %.
IL tie ISSUING corporation convert
IDLE b9rds one perhaps as many at
fractions to the investor, The hrst'
af.d siil prominent. advantage was
tc increase The marketa hllltN of the
issue Particularly when interest
hates are high and tho speculative
Shirt rife. il il hard 10 draw capital
into fields where the return Is strictly
tli0tited- as an appeal TO this specu-
lativt, spirit the cooperation gives It's
| l4-444&- convertible fen Alre.-ln this
coun3V such securities tlrst became
innporfant during aud after the civil
war AID then following DECADE
or twt OF compar ative disuSc returned
/ Ia favor about the beginning OF the
twentieth century, when the demand
| fo- capital again became keen, Al
present convertible issues, hltherto
| largely feature OF railroad hhancs,
wen III rublic utility and industrial
! fields. seem increasingly popular
! Conversion OF bonds into stock in
/ the DAYS of a company's prosperity.
/ orce u ngivilege grudgingly granted
70 attrac. capital when other means
/ had failed Is now seen To possess
,aany advantages for the corporation
Itself Interest ON bonds is fixed
charge which must be paid IN good
wears ard lad alike il the company
| Is to keel. out OF receivershlp; dlvt-
! dtude a sock are merely shares III
the pIofits which may be reduced or
entirely etlrt,nated when earnings de"
| cline Such companies as the Nor
| folk aud Western, the Atchison, ana
/ the Union Pacific, financed largely ny
convertible bonds of which millions
have been exchanged for stock. are
in a 81 ong position when hard times
! III cater. tor their income could he
GU IL half without menacing interest
on ,heir Obligations.
The use OF convertible bonds TO keen
down funded debt possesses certain
advantages over the sale Of stock
In the first place, az bonds can gem