New Issues

Issues are being made of new stock all the time, partly to finance the continually increasing need of the government to borrow to finance its spending, and partly to take the place of stocks maturing and being repaid. A subscriber for a new issue must look at a fourth term - the amount payable on issue. This need not be at par (£100 cash for £100 of stock); it could be 'at a premium' (exceptional) or 'at a discount'. For example, a new issue could be made in 2001 of 121/2 % Treasury Stock 1996 'at 90'. That means that a subscriber will need to invest only £90 in cash to get £100 nominal of the stock, on which he will be paid interest of £12.50 gross (usually payable in half-yearly instalments, and with basic-rate tax deducted) until, 15 years later, the government pays him out at par.


Notice two main points. The coupon rate is 121/2 %, so the subscriber gets £12.50 a year interest on an investment costing £90, which works out at a flat or running yield of 13.88%, since 12.5 is 13.88% of 90. The arithmetical formula is very simple:

par value (100) x coupon running yield %. price

But if the subscriber were to hold on to his investment until maturity in 1996 he will make a capital profit of £10 - roughly 66p a year. So the gross yield to redemption is:

100 x (12.5 + 0.66)

= 14.62% .90

These calculations make no allowance, of course, for inflationary loss in the value of the capital.

Government Stocks

The largest collection of marketable fixed-interest investments consists of the so-called 'gilt-edged' stock issued by the government. Part of the government's vast expenditure is financed by raising loans from members of the public and the financial institutions such as banks, insurance companies and pension funds, who subscribe cash on loan to the government and receive in exchange a certificate or bond setting out the terms of the stock.

They are called gilt-edged or simple 'gilts' because the security is undoubted, both income and eventual repayment being guaranteed by the government.... see: Government Stocks

Refunds, Personal And Business Finance 2017

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