A small request before I put my next question
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. What I am about to ask might seem a little odd and from experience I expect one or two might be tempted to ask why on earth I want to work like that - but if you could just humour me as a bit of a nutter and just answer the theoretical question - I would be most grateful.
Thanks.
BTW If you are not interested in companies, dividends and running funds - now might be a good time to leave the thread
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Ok - let's imagine I've created my new company. I'm trading the FTSE futures using the companies IB account. I've got a strategy (a little unconventional) that sets the base price of my share as:
(5000-ftse)^2 / 1,000,000 e.g. if the ftse is at 4500 then the share is worth 500^2/1000000 = -.25 and if the ftse is at 4000 it is worth -1.00. Each share pays out a dividend of 3p a month.
I need to create a system where my mates can decide how much they want to pay for each share based on how low they think the FTSE might fall. The higher they assume, then the less they need to pay for each share and the better their returns will be.
If for example the FTSE is at 5000 and has a value of zero and they pay £1 a share then they can afford to let the FTSE fall to 4000. If it does fall to 4000 then they can either see their shares liquidated or they can pump in more cash.
That's the scenario I am trying to create - how I do it - I don't mind.
Here is the best idea I have had so far:
I split the shares (on paper - not with companies house) into various flavours each share covers a fall to a certain value e.g. to 90% of 5000, 80%, 70% and so on. The cost of each share is basically equal to:
the price of a fall from 5000 to the bust value plus
the cost of the current fall from 5000 plus
any profits that have built up in the fund and will be paid out as a dividend at the end of the month
So the base price of the 90% fund is 25p. The fund will be worth 25p-0p=25p when the FTSE is at 5000 and 25p-25p=0p at 4500.
The base price of the 80% fund is £1 and the fund will be worth £1-0=£1 at 5000, £1-25p=75p at 4500 and £1-£1=0p at 4000.
The cost of upgrading between the fund flavours is just the difference in the base price of the units, which in the case of the 90% and 80% funds is 75p.
It is a system that would work on paper - I'm just not sure if companies house and the inland revenue are going to be happy that shares come in different flavours and cost different amounts.
Any suggestions - gratefully received.
John.