Subscribe to this topicForums > JT Investment Certificates > Topic: When does JTIC outperform a plain cash account?
| Nov 13th 2007, 18:56 Unoti Quonset |
When does JTIC outperform a plain cash account? | |
| An SLCapex (or should I call it a JTF cash account) earns 0.1% interest compunded daily right now. JTIC bonds have their dividend schedule. Assuming I'm going to invest some money for 30 days, at what JTIC share price is it a good idea to buy JTIC shares instead of leaving the money sitting in my SLCapex cash account? I know there's people out there who know how to make these calculations easily. But betweent he complexities of compound itnerest and my personal uncertainty on how JTIC pays out, this is jsut too much for me to wrap my head around without more study and contemplation than I can muster. I just wouldn't be able to sleep at night if I were to buy JTIC shares and later discover that I was would have made like 100L more if I had left my money sitting in cash form earning interest. |
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| Nov 24th 2007, 09:25 Guardian Market |
Re: When does JTIC outperform a plain cash account? | |
| Utoni, Your question is actually a fairly complex one because the point at which the price becomes advantageous depends on when we're looking at it. In general, how do we solve this problem? We can use the concept of present value to determine what JTIC's payment and principal are worth before they come due. In order to do this, we ask the question, "What is something with a value of 1.061773 at time T = 31 worth at time T = t?" (T = 31 because that's the end of 30 days.) Basic compound interest equation: FV = PV * (1 + i) ^ t We're looking for PV, so we solve for it FV / (1 + i) ^ t = PV We know we're at time t, and we're looking for the end of time 30 (aka the beginning of time 31). FV / (1 + i) ^ (31 - t) = PV For FV, we use 1.061773, and for i, we use the JTF interest rate, making our equation 1.061773 / (1.001)^(31-t) = PV (As an aside, in my profession we divide by the interest rate so frequently that we use the symbol v ("vee") for it. In actuarial notation, therefore, this would be written as 1.0061773*v^(31-t) = PV) I've made up a quick Google Documents spreadsheet so you can see how this works over 30 days. Bear in mind, this is an example spreadsheet for a 30 day calculation, and the present values change if you take the entire life of JTIC into account. It would also change if you did multiple buys and left some cash in your account accumulating interest. You can find the spreadsheet here: http://spreadsheets.google.com/pub?key=pwaVmn9KOqgUBtFZaA43AEA P.S. Sorry it took me so long to find this post. |
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| Nov 24th 2007, 11:02 Guardian Market |
Re: When does JTIC outperform a plain cash account? | |
| Update: I wrote a better article explaining this concept on Second Chaos. Those interested can find it here: http://secondchaos.blogspot.com/2007/11/lessons-in-fm-part-i-present-value.html | ||
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| Nov 24th 2007, 13:31 Xavier Mohr |
Re: When does JTIC outperform a plain cash account? | |
| I think my IQ just dropped about 20 points reading that, Guardian. | ||
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| Nov 24th 2007, 20:10 Guardian Market |
Re: When does JTIC outperform a plain cash account? | |
| Thanks, Xavier :-P Seriously though, I'd be happy to answer any questions about that calculation either here or on Second Chaos. I can see one question arising because I did a bad job explaining something: The 1.061773 comes from the interest payment I calculated for JTIC here: http://www.slcapex.com/forums/topic/JTIC/822 Any other questions of that nature? Bring 'em on! I know I'm not the only one in these forums who can do these calcs... |
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| Jan 8th 2008, 19:38 Unoti Quonset |
Re: When does JTIC outperform a plain cash account? | |
| You rock my world, Guardian. Seriously, that was delicious. | ||
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| Jan 9th 2008, 01:28 Sparkle Junot |
Re: When does JTIC outperform a plain cash account? | |
| Unfortunately it can't outperform anything at this point. | ||
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| Jan 9th 2008, 18:55 Guardian Market |
Re: When does JTIC outperform a plain cash account? | |
| Anytime, Utoni. Anytime. :-D |
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| Jan 9th 2008, 19:34 Unoti Quonset |
Re: When does JTIC outperform a plain cash account? | |
| : Unfortunately it can't outperform anything at this point. Actually, I'd say the reverse is true. It looks to me like JTIC may still be ok, while normal deposit accounts will not. |
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