The centuries-old debt that's still paying interest
In 1648, a Dutch water board needed to fix flood defenses and sold a special type of bond to raise money. Unlike most modern bonds, this one never expires, meaning it pays interest forever. This type of bond, called a perpetual bond, was common in the Middle Ages. The water board, which had the power to collect taxes and didn't go to war, could always pay back the bondholders. This specific bond is now owned by Yale University, and it still pays a small amount of interest each year. Even though the payment is very small, both Yale and the Dutch water authority find it worthwhile because it represents a unique piece of financial history.
Key Vocabulary
To combine again or to form a new combination after a separation or division. In this context, it refers to the merging of smaller water boards into larger entities.
Examples:
- After the initial experiments failed, the research team recombined the chemical compounds in a different ratio.
- The various departments were recombined under a single management structure to improve efficiency.
- The artist recombined elements from ancient mythology with contemporary art styles in her latest exhibition.
A bank of earth or stone built to keep water back or to carry a road or railway over an area of low ground. Here, it refers to the structures used to prevent flooding.
Examples:
- The old bridge was supported by sturdy stone embankments that had withstood centuries of floods.
- Workers reinforced the river embankments to protect the nearby village from rising water levels.
- The train tracks ran along high embankments, offering passengers panoramic views of the countryside.
An embankment built to prevent the overflow of a river. This is the specific type of embankment mentioned for flood control.
Examples:
- After the storm, the community worked together to repair the damaged levee.
- The city's flood defenses rely heavily on a system of interconnected levees.
- Engineers designed a new levee system to protect the expanding urban area from future floods.
A note by way of explanation or comment added to a text or diagram. In this case, the markings on the bond document representing interest payments.
Examples:
- The student made extensive annotations in the margins of her textbook while studying for the exam.
- The ancient manuscript contained numerous annotations from different scholars over the centuries.
- The architect's plans included detailed annotations explaining the materials and dimensions for each section of the building.
Refers to a type of guilder, a former Dutch monetary unit, specifically one issued during the reign of Charles II of Spain (Carolus II) or inspired by such coinage. Here, it specifies the currency in which the bond was initially valued.
Examples:
- The historical museum displayed a rare collection of carolus guilders, each bearing the distinct royal emblem.
- Merchants in the 17th century often exchanged goods for carolus guilders, a widely accepted currency of the time.
- The old ledger recorded transactions in various currencies, including a significant sum in carolus guilders.
A former monetary unit of the Netherlands, as well as several other countries. It is the currency in which the bond was originally issued.
Examples:
- Before the euro, the guilder was the official currency of the Netherlands.
- The antique map was purchased for a significant sum of guilders at the auction.
- Travelers exchanged their foreign currency for guilders upon arrival in Amsterdam.
Never ending or changing; occurring repeatedly. In the context of the bond, it means without a set maturity date or end point for interest payments.
Examples:
- The perpetual motion machine was a theoretical concept that fascinated inventors for centuries.
- The company's perpetual commitment to customer satisfaction earned them a loyal following.
- The artist found perpetual inspiration in the ever-changing patterns of nature.
An amount of money paid regularly in order to receive a product or service, or to be a member of a club or organization. Here, it refers to an ongoing payment or commitment.
Examples:
- She canceled her magazine subscription after realizing she no longer had time to read it.
- The online streaming service offers a monthly subscription for access to its entire content library.
- Membership in the exclusive club required an annual subscription fee.
The action or process of paying someone or something, or the amount paid. In this context, it refers to the regular interest disbursements from the bond.
Examples:
- The monthly payment for the car loan was due on the first of every month.
- She received a prompt payment for the freelance work she completed.
- The company offers various payment options to accommodate its customers.
A sum of money lent or invested on which interest is paid. In finance, it refers to the original amount of a debt or investment, excluding any interest.
Examples:
- The principal of the loan was $10,000, and the interest rate was 5%.
- Investors are often concerned with protecting their principal investment.
- After years of payments, they finally paid off the principal of their mortgage.
To reduce something in amount, extent, or intensity. Here, it means the interest payments were decreased.
Examples:
- The company lowered its prices to attract more customers during the economic downturn.
- The doctor advised him to lower his salt intake for better health.
- The government lowered taxes in an effort to stimulate the economy.
The attention given to someone or something by the media. In this context, it refers to the positive attention gained by the Water Authority.
Examples:
- The new movie generated a lot of publicity even before its release.
- The charity event received positive publicity, leading to an increase in donations.
- The company hired a public relations firm to manage its publicity during the crisis.
A claim or dispute brought to a court of law for adjudication. Here, it refers to the possibility of legal action.
Examples:
- The two companies settled their lawsuit out of court to avoid a lengthy trial.
- She filed a lawsuit against the contractor for breach of contract.
- The famous athlete faced a defamation lawsuit after making controversial remarks.
To combine or cause to combine to form a single entity. Here, it refers to the consolidation of smaller water boards.
Examples:
- The two small technology companies merged to create a larger, more competitive firm.
- The historical societies of the two towns merged to form a regional preservation group.
- After years of operating separately, the art and music departments finally merged into one faculty.
To cause a person or organization to be declared legally unable to pay their debts. In this context, it means to financially ruin or deplete the funds of a government.
Examples:
- Excessive spending on unnecessary projects could bankrupt the small business.
- The sudden economic downturn threatened to bankrupt several industries.
- Gambling addiction can quickly bankrupt an individual if not addressed.
To reach a state of full development or completion. In finance, a bond matures when its principal amount is repaid to the bondholder.
Examples:
- The investment will mature in five years, at which point the principal will be returned.
- It takes time for an oak tree to mature into its full majestic size.
- The company's new product line is expected to mature within the next year, becoming a major revenue source.
A method, course of action, or instrument by which something can be achieved. In this context, it refers to a financial resource or way of achieving something.
Examples:
- He used every means at his disposal to solve the complex problem.
- The charity relies on donations as its primary means of funding.
- Learning a new language is an effective means to broaden one's cultural understanding.
To occur at the same time or to be in agreement. Here, it means that the flood plains do not align with political boundaries.
Examples:
- Her vacation plans unfortunately coincided with a major family event.
- The company's annual meeting will coincide with the industry trade show.
- The discovery of the ancient artifact coincided with the start of the archaeological dig.
The capital raised by a business or corporation through the issue and subscription of shares. Here, it is used as a comparison to perpetual debt, referring to ownership shares in a company.
Examples:
- Investors buy stock in companies hoping that its value will increase over time.
- The company decided to issue new stock to raise capital for expansion.
- He diversified his investment portfolio by purchasing stock in various industries.