ACCRUED INTEREST

Hokitika Guardian, 18 March 1932, Page 2

ACCRUED INTEREST

BONDS AND STOCKS

COMMENT ON NEW TERMS OF iSA LE.

WELLINGTON, March 17

Commenting on the alteration in the terms of sale- of Government-bonds and stocks, the pre.-ideut of the Wellington Stock Exchange (Mr E. Bucholz) said:

“1 wish to make the matter quite clear that the action of the Exchanges must not he taken jus an indication that the Government is expected to reduce interest rates on its own loops or to authorise a reduction on oiucr forms of debentures. Such interpretation would he entirely erroneous. - ,

••What his been done jo to adopt an alternate method of quoting 'which ;is already in almost universal use overseas. Investors "ill now know that -having bought or sold debentures tr.c coricidorawon money agreed upon is final and not subject to any claim for readjustment- in the event of interest being deferred or reduced. The change will clarify bargaining at all times.”

Mr Bucholz added: “The change is, and wi.l always he, in the interests of the investing public, but this may not be immediately apparent to all investors.” In the past quotations and sale of such stocks have been in New Zealand at prices subject to adjustment of interest. That is the buyer has paid the seller, in addition to the price agreed upon, the amount of accrued interest calculated to the date of sale. This system has its disadvantages.” Were reduction of interest rates itocuieci upon the buyer umber th.O former system would have paid out at n, higher rate tliau he eventually received.

•‘'Another aspect which has boon considered is th<r'' eon fusion which would result where a company or local body fpiii’-d it-elf unable to pay any interest. In such n ease (he buyer would have paid out interest which he may never receive. As quotations will now be made the price will include all interest which mnv be paid the holder of the a topic of debentures at the end of the interest term. This method has obtained in Australia and abroad for very many years, and, in effect, is exactly the same custom as applies to shares and • dividends.”