Now, suppose a person invested £20,000 in Consols at 112, and that his banker agreed to advance £18,000 against them at, say, seven days' notice at one per cent. per annum. Two-and-three-quarter Consols at 112 return £2 9s. per cent. (about). His annual income, therefore, on £20,000 would amount to about £490; but he owed his banker one per cent. on £18,000. Hence £180 must be deducted from £490. Upon a capital of £2000 he therefore earned £310; and a return of fifteen-and-a-half per cent. per annum on Consols is surely an excellent reward for his skill. Of course, we must not forget possible depreciation; but seeing that the banker's advance released £18,000, which he can use, he can afford to take some risk. The following example, however, affords a more practical illustration of the possibilities of speculation in Consols during the depressed portion of a cycle, when the prices of commodities are low and loanable capital is cheap. First, we want to ascertain the movements in this security from, say, 1894 to 1896, and of these the table given hereunder supplies a good idea:-- ========================================================================= | 1894. | 1895. | 1896. | Goschen's +----------+----------+----------+Bank rate from Two-and-three-quarters | Highest. | Highest. | Highest. |22nd Feb., 1894, per cent. | 103⅝ | 108⅛ | 114 | to 9th Sept., (Two-and-a-half | | | | 1896. per cent. | Lowest. | Lowest. | Lowest. | after | 98⅜ | 103½ | 105⅛ | Two per cent. 5th April, 1903) | | | | ========================================================================= Let us assume that a person invested £20,000 in Consols at parity in 1894, and arranged with his banker for a loan against them at Bank rate, and that the banker's margin was to be ten per cent. on the purchase price. He received, then, a loan of £18,000 from his banker, so the amount of his own capital remaining in the venture was £2000. Very probably, especially if his credit were beyond doubt, he would have made a closer bargain with his banker, and thus have reduced the margin slightly--but this is by the way. Upon his £20,000 in Consols he obtained two-and-three-quarters per cent., so that his annual income therefrom was £550. But as he had to pay his banker two per cent. per annum on £18,000, £360 must be deducted from £550. His capital in the speculation being £2000, he made £190 thereupon. This gain works out at nine-and-a-half per cent. per annum, and nine-and-a-half per cent. on Consols may surely be classed among the minor forms of temptation. Moreover, as the Bank rate stood at two per cent. for slightly over two years and a half, he had a long run for his money.