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Diary of A Singaporean Mind: Why all DBS HN5 investors should be fully compensated!
Lucky Tan looks at Dr Money's analysis of HN5 published in the New Paper on Mon 27th Oct 2008.
"A product with such a high risk sold marketed to risk adverse investors as a low risk product must have been wildly profitable for DBS. How much did DBS take in through markups in initial pricing, early surrender charges, market making margins, initial commissions and management fees? These are important questions to ask because it will tell us if DBS passed on a disproportionate amount of risks to customers in exchange for high profit margins."
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2 comments:
If there are 8% chance of total loss, then the returns should be in the range of 15-16%.
Multiply by the numbers of years and entity involved.
The returns should be 15% x 5 years x 8 r.e.
In Sg pools betting, (take out the draw probability)
if 50%-50% chance, the payout is 1.95-2.0.
So if Man U is (92% winning vs 8 %losing,Draws counted as Manu U win.) The odds should be around 1.15-1.16.
Repeat this bet against 8 kampong team over 5 seasons.
Along the way, if Man U lose to any kampong team(Even fail to draw), you lose your bet.
If they win all the way, your return should be 1.15*5*8.
just to add to anon 3.39pm, that is the risk premium.
one should add the risk free interest rate (govt bond interest rate) to the risk premium to get the rightful coupon that investors should receive.
during 2007, the 5 year interest rate was already 3%+
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