Wednesday, March 06, 2013

The War Bond

My friend Anupam is not old enough to remember FDR--or Adlai Stevenson, come to think of it--so I had to educate him on Series E War Bonds.  I got one for--it must have been my eighth--birthday in 1944.  It looked to me like money.  I knew that it had cost $18.75 and promised pay $25 after 10 years.    That pencils out to a (geometric mean--(25/18.75)^0.1-1) annual return of 2.9 percent.   I remember reading somewhere that the campaign was designed partly to raise money but also to suck liquidity out of the economy so as to prevent inflation.    Using data compiled by the indefatigable Ashwath Damodaran, I find that the implied yield on a regular 10-year Treasury for the same period would have been ((218.57/172.12)^0.1-1) an annual return of about 2.4 percent.  So actually my piddly little E bond did better than the market.

Unfortunately stocks, by contrast, would have yielded a whopping annual average return of 16.7 percent.   I once told Anupam the bond ended up looking like a pretty cheesy return.  What are you complaining about, he said, you won the war didn't you.

Afterthought:  I remember getting the bond.  I have no recollection whatever of cashing it in.  I gather there are billions of dollars' worth of old government bonds languishing unclaimed.  Do you suppose I am one of them?

1 comment:

Anonymous said...

No, I don't suppose you are an old government bond languishing unclaimed.