Houman's Future Value Price

john@mr-manners.com

The V(f) Future Value Price equals the V(p) Present Value Price plus I(t) minus C(t) minus F(t)

I(t) accrued interest over time
C(t) commissions
F(t) financial charges

V(f) = V(p) + I(t) - C(t) -F(t)

 

Although time subscripts are sometimes omitted, the intuition behind this equation is the relationship between nominal and real rates, and the percentage change in the price level between two time periods. So assume someone buys a $100,000 Financial Instruments for a time period T while the interest rate is (T x I) If redeemed in period t + 1, the buyer will receive (100,000 + I(t)) dollars. But if the C(t) & F(t) price level are different between Financial Instruments, then the real value of the proceeds from the Financial Instruments is different.

 

This is where the fiduciary law comes into effect. I(t) for both Financial Istruments is the same, C(t) and T(F) are not the same for each instrument and the broker knows but does not disclose all this information.

Let's say the value of I(t) is $20,000

therefore

Financial Instrument A

V(f) = V(p) + I(t) - C(t) - F(t)

V(f) = $100,000+ $20,000 - C(t) - F(t)

V(f) = $120,000 - C(t) - F(t)

Financial Instrument B

V(f) = V(p) + I(t) - C(t) - F(t)

V(f) = $100,000+ $20,000 - C(t) - F(t)

V(f) = $120,000 - C(t) -F(t)

 

In today's marketplace C(t) and F(t) are not fully disclosed

 

Financial Instrument A

V(f) = V(p) + I(t)) - C(t) - F(t)

V(f) = $100,000+ $20,000 - C(t) - F(t)

V(f) = $120,000 - C(t) - F(t)

If

C(t) = 1.0% =$1,000

F(t) = $2,000

Therefore

V(f) = $120,000 -$1,000 -$2,000

V(f) = $120,000 -$3,000

V(f) = $117,000

Financial Instrument B

V(f) = V(p) + I(t) - C(t) - F(t)

V(f) = $100,000+ $20,000 - C(t) - F(t)

V(f) = $120,000 - C(t) - F(t)

If

C(t) = 3.0% =$3,000

F(t) = $5,000

Therefore

V(f) = $120,000 -$3,000 -$5,000

V(f) = $120,000-$8,000

V(f) = $112,000

 

Without a fiduciary responsibility which Financial Instrument do you think your broker would recommend to you?

The way I look at it, your broker received $5,000 of your money selling you Financial Instrument B

 

 

 

 

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