My friend invested $40,000 in the Vitamin account issued by a local bank in October 2005. He received a payout of 4% at the end of 1 year but there was no payout for the next five years. On maturity, he received back only his principal. The total payout was 4% for 6 years or only 0.7% per year.
According to this structured product, the payout in subsequent years is calculated on the following formula:
In this type of structured product, which was approved for sale by the Monetary Authority of Singapore, it is almost impossible to calculate the odds. The empirical evidence in the past years has shown that the financial institutions had made billions of dollars from these types of products, and the investors had got a very poor deal. No wonder, the financial institutions around the world have been cursed by the ordinary people.
If he had invested the money in the Straits Times Index through a ETF, he would have obtained an appreciation of 17% for the period, plus a dividend payout of about 15% for the 6 years, giving a total payout of 32% (compared to 4% from the Vitaman account). What vitamin!
According to this structured product, the payout in subsequent years is calculated on the following formula:
Potential payout rate = the average of the annual returns of all 18 shares for each potential payout date where the annual return in relation to each share for each of the potential payout dates is (a) 4%, if that share is one of the 15 best performing shares or (b) individual stock returnI am an actuary, and I do not understand the logic of this type of formula. I can figure out the calculation but NOT THE LOGIC. It seemed that the creator of this product was allowed to write the formula in any way that he wanted - without regard to logic or fairness. This is much worse than gambling in a casino. At least, in the casino, the gambler is able to calculate the odds and the spread.
In this type of structured product, which was approved for sale by the Monetary Authority of Singapore, it is almost impossible to calculate the odds. The empirical evidence in the past years has shown that the financial institutions had made billions of dollars from these types of products, and the investors had got a very poor deal. No wonder, the financial institutions around the world have been cursed by the ordinary people.
If he had invested the money in the Straits Times Index through a ETF, he would have obtained an appreciation of 17% for the period, plus a dividend payout of about 15% for the 6 years, giving a total payout of 32% (compared to 4% from the Vitaman account). What vitamin!
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