May 7th, 2009, 2:53 pm
QuoteOriginally posted by: montecristoOne of your friends is the owner of a newly Wall Street coted Start Up (worth 10$ today). You think that his start up will be a very good investment. So he proposes to you the following contract: You give him today 200$, and if in the futur the stock reachs 500$, he will give you one million dollars immediatly. He also tells you that the firm has the following "dilution" rule: if the stock reachs 100$, it will be devided by 5 and every holder will have (naturally) 5 shares (each share is worth 20), and then starting from 20$, if it reachs 200$ it will be devided by 5, and so on...Would you by this contract? 20 * (10$ --> 100$ --> 5*20$) 5 * 20 * (20$ --> 200$ --> 5*40$) 5 * 5 * 20 * (40$ --> 400$ --> 5*80$) 5 * 5 * 5 * 20 * (80$ --> 500$)So when the stock price reaches 500$ I will have 20*(5^3) shares with the total value 20 * (5^3) * 500$ = 1250000$ which results in a better profit than the contract offers.