THE NEW ZEALAND LOAN.
To the Editor. Sir, —In your issues of yesterday and i-day the cable reports in connection with ■>e £4,000,000 New Zealand loan that we -e told has been underwritten in London ive us food for thought, and possibly for little criticism. One could very well disuss the question as to why the London Jews” should be enriched at New xpense and whether it is necessary to borow the money at all, but I shall content lyself meantime with simply trying to nlighten your readers as to the actual, as "impared to the nominal, rate of interest his £4,000,000 lean is costing New Zeaand. Your cable report this morning in?rs that we are paying £4 6/11 per cent, ’s compared with £6 5/- per cent, in 1921. Jut are not such figures misleading? Yes erday’s report- was that the loan had been underwritten” at 4 per cent, at 92, reayable 1933-45. Let us take the minimum ?riod—l923 to 1933 equals 10 years—and .e get the following problem:— Question: If to-day we receive £92 fcr very £lOO to be paid to the underwriters ■n 1933, and if we pay £4 per annum for very £92 so received, what actual rate of nterest is the loan costing us? Answer: Dividing the £8 (see above £lOO ess £92) by 10 years, we get 16/- per annum that must really bp treated as an in l erest charge. Adding this 16/- to the £4 wrongly called 4 per cent.) we get £4 '6/- as the total yearly interest charge on he £92 supposed to be received. This vorks out at £5 4/5 per cent., and not £4 i/ll as contained in the cable reports. If o this we add a further charge to cover ,\’ew Zealand’s costs of underwriting the .oan, we find that we are paying somevhere from 51 to 51 per cent. Another question: What profits do the underwriters” make out of the transaction? I trust the above will give some food for Thought, particularly when we were ..told mly a few months ago that moneylenders n Lcndon were asking 5 per cent. only. Why is this £4,000,000 costing so much?— I am, etc., G. S. THOMSON (of Dunedin). Invercargill, May 9.
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Bibliographic details
Southland Times, Issue 18937, 10 May 1923, Page 7
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373THE NEW ZEALAND LOAN. Southland Times, Issue 18937, 10 May 1923, Page 7
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