Every evening, Wilmington daily commercial., 1922-05-03
WEDNESDAY. MAY 3. ie22.
PREMIUM AND INTEREST.

The city of Wilmington. this week |
disposed OF bond issues amounting
60 s7ab.o0O. bearing interest at the
rate OF "a per cont per annum. AT a
premium which totals s3a.s43. This. !
on its face. seems like a very sue
ccasful transaction. one bearing testi-
mony 20 the high financial credit
Of the city" and TO the attractiveness
of lts securities hut there is a pos
slhility Il may mean something else.
The financial credit Of a municipal
iiy L. based on the security Il can offer
IN support Of its bonded Indebtedness.
A. long as the municipality Is soundly
solvent. possessing visible asse,s Of
established value. It's bond issues will
be- regarded IA safe. provided their
total does not exceed the generally
accepted ratio of assets 20 liabilities.
Tho popularity or additional desira-
hnity Of its bonds viii he determined
by the rate OF interest they carry. In
these times security bearing inter
est at the rate ot a.. per cent per
nnnum In looked upon "a very invit-
ins. Hence the apparently generous
extent of the premium offered by the
successful bidders.
The annual interest payments on
this bond issue of s745.0O0. at a. per
cent, will amount to ss3.525. The
premium. therefore. Ia little more
than a thousand dollars I'm excess OF
one years interest II viii provide
for the payment Of the frst years
interest. with some to spare.
Hut suppose thcss bonds had car
ried interest at only 4 per cent. In
the present financial situation Il is
probable they would have COM
nsndcd at least par. and probably a
small premium sufficient 10 cover the
entire costs OF issue and negotiation.
Then the city would have had no ac-
tual premium IN hand after the trans
action. But the interest payments
at per cent would have amounted "a
only s2a.s0o per annum. or s3.725 less
each year than the issue at ~ pei
cent.
The interest saving by this transac-
ton would have been ss,725 a year
which In ten years would hav,
amounted 20 1880. or nearly $1,000
more than the premium offered for
the sh per cent issue.
This bond issue Is rcdeemahle a
any time from 1919 TO 1857. Its mini
mum life. therefore is % years. dur
ine which time the saving in inter
est by per cent issue would have
been very considerably more thar
the saving In ten years.
These comparisons go to show tina
bond issues which command lib
cral cash premium are not Away
the best for community. certainl.
not the most economical.
II has been asserted by high hnan
cial authority that. all other consid
erations being safe and sound. tn
popularity" Of a municipal or othe
public bond issue Is attested by IN
rate Of interest it carries. The highc
the interest rate the more "popula
the issue. Also. the more cost
upon those upon whom viii rest tn
duty of providing Tor interest pay
ments and final redemption.
IL Is said the law authorizing n
bond issue established the rate of ir
trcsct at sh per cent II II set dow
arbitrarily any rate OF interest. a mi,
take was made. The formula. "beai
Ing interest at not more than" a cel
thin rate would have been sll-suf'
cient. But even n the law specih,
n certain rate, II is not likely tn
would have been a bar TO floating u
issue at lower rate. II possible.
would have been bar against a
taching any higher rate.
However. the lessons OF this late
issue may he important in their ,
feet upon future transactions.
should point out the necessity OF gre
care In studying market and mon
conditions. and arranging inters
rates AZ a stage that would permit
the very best bargaining with inve.
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