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  #1741  
Old 06-08-2019, 12:42 PM
Westley Westley is offline
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Yes, and I'm asking what's that the present value of? I mean, it's obviously the PV of 15% less than $6000, which represents, what?
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  #1742  
Old 06-08-2019, 12:47 PM
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4.2% post tax 6 month return is a lot better than the risk free rate.
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  #1743  
Old 06-08-2019, 01:08 PM
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Yes, and I'm asking what's that the present value of? I mean, it's obviously the PV of 15% less than $6000, which represents, what?
The value at present of the right to sell that 15% discounted of $6K in stocks in 6 months time.
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  #1744  
Old 06-08-2019, 01:09 PM
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Originally Posted by Arthur Itas View Post
4.2% post tax 6 month return is a lot better than the risk free rate.


Nothing is more annoying when people use (and misuse) a risk free rate of 3% because they learned it once in an oversimplified econ course.
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  #1745  
Old 06-08-2019, 01:10 PM
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Quote:
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Yes, and I'm asking what's that the present value of? I mean, it's obviously the PV of 15% less than $6000, which represents, what?
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4.2% post tax 6 month return is a lot better than the risk free rate.
Sure. But you have better investment alternatives which would give you higher risk-adjusted returns.

This kind of investment only makes sense if you hold the shares long-term AND you think your company is a good long-term investment.
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  #1746  
Old 06-08-2019, 01:12 PM
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Nothing is more annoying when people use (and misuse) a risk free rate of 3% because they learned it once in an oversimplified econ course.
Given that you are in P&C, your knowledge of this sort of thing is minimal.

Stick to pricing motor policies.
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  #1747  
Old 06-08-2019, 01:34 PM
Westley Westley is offline
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The value at present of the right to sell that 15% discounted of $6K in stocks in 6 months time.
Value of the "right to sell" at what terms? Because the participant actually sells at market prices, so that "value" of that "right" is obviously $zero.

Additionally, the participant pays $6k, so I'm not sure how it's "$6k in stocks in 6 months time"? Since the participant purchases the stock at a 15% discount, the actual purchase is $7058.82 "in stocks in 6 months time" at market prices, so I'm not clear why you're measuring the PV of an amount of stock that is more-or-less unrelated to the transaction that's taking place?
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  #1748  
Old 06-08-2019, 01:37 PM
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Value of the "right to sell" at what terms? Because the participant actually sells at market prices, so that "value" of that "right" is obviously $zero.

Additionally, the participant pays $6k, so I'm not sure how it's "$6k in stocks in 6 months time"? Since the participant purchases the stock at a 15% discount, the actual purchase is $7058.82 "in stocks in 6 months time" at market prices, so I'm not clear why you're measuring the PV of an amount of stock that is more-or-less unrelated to the transaction that's taking place?
I think we are looking at this a bit differently.

You are adjusting the value upwards while I am doing it downwards.

$6K is the unadjusted value of the stocks in 6 months time. He then gets a 15% discount on that price.
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  #1749  
Old 06-08-2019, 01:39 PM
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This kind of investment only makes sense if you hold the shares long-term AND you think your company is a good long-term investment.
Disagree if the plan allows you to sell immediately upon acquisition as described here. The risk of a severe drop in price in a day or two is relatively low to get a 4.2% post tax return every 6 months per your estimate. There is of course risk of bankruptcy during the 6 month period that could potentially put any withholding at risk, but it would need to be a swift deterioration to have employee withholding seized as an asset.

If there is a required holding period for ESPP then I do agree with your statement.
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  #1750  
Old 06-08-2019, 01:41 PM
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I think we are looking at this a bit differently.

You are adjusting the value upwards while I am doing it downwards.

$6K is the unadjusted value of the stocks in 6 months time. He then gets a 15% discount on that price.
Westley has it right. If they withheld $6k you get $7k of stock at time of purchase
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