THE MOST PROFITABLE RATE OF INTEREST.

Wairarapa Daily Times, Volume VII, Issue 2068, 14 August 1885, Page 2

THE MOST PROFITABLE RATE OF INTEREST.

Referring to the N.S.W. loan, the Melbourne Argus, the . highest financial authority south, saysAs we in Victoria have a large loan to float presently, it is important for us to note how Sydney has fared in her effort to obtain money at 3} percent,' On:the whole, it cannot be said'that the experiment has been a success. A low interest, it was urged, and generally thought, would command, relatively a better price than a hi|j|r in. terest,' because trustees and prefer to buy under par, with a view of increasing the principal sum at the end ef the term. The experience of the market has not confirmed this view, Accepting the figures of the SydneyTreasurer, it appears that the four ■ per cent, debentures should be worth £lO 2s 6d more than 3J per cent, debenture, but the 4 per cent, debenture is selling in London at £l3 7s 6d in advance of per cent, security. In other words, South Wales can get much more by oifering. a debenture with an interest that carries it beyond par, than she can for one that sells below par. Anticipation is thus belied. And there are two other considerations which are very important, and yet which are seldom, if ever, mon- • tioned in these discussions—which aro - strangely overlooked by - financiers. By floating loans seriously below par. we unduly swell the volume of our debt. Nominally the Sydney Government floaty loan of £5,500,000, and really if obtains} very little over £5,§00,000, This continifaj dropping of half millions tell§, An amount is represented to have beee spent on the Public Works which hqq not been stj expended, Again, a colony below par for the sake qf Jqw apresfc,.. ought to provide a sinking fund ttLhieet the certain deficiency at the end of th§ term. If this is not done, then, though only 5,000,000 is obtained in the first' year of the loan, we saddle posterity with the repayment of £5,500,000,. and- that is manifestly unfair, The' wjtolewiq rule appears to bo to avoid both Me premiums and large discounts, but! ifpar cannot be exactly hit, then to borrow at a premium, go that at the end of the term ,we shall have to pay loss than we have received, and not more. By this plan part of the principal is repaid yearly in the interest instalment) mi the familial' building-society system, By the other plan, wo arejnqt decreasing, bi)t aro increasing, our principal; and this for the sake of a gain which is shown to ho more nominal than real, This is the spendthrift's arrangement, and after considerationit is hardly likely to be approved of by prudent business men. - A sinking fund is the proper sequence of borrowing under par, but—if the Sydney experience is conclusive—a sinking fund to make up' the deficiency would show at onceWhafc wo were borrowing upon disadva'i®eous terms." T