gnspa showing 66 pct per annum return to sep08, page-14

take a look at this cloudstreet
113% per annum to Oct 2008 (GNSPA)

Buy $85 today
Receive one interest payment in Sep 2008= $2.5
Receive back $102.5 capital end Sep08= $102.5
Total return = $105
Gain mostly capital = $20
% return over 2.5 months say = 20/85 = 23.5%
Annualised =23.5*12/2.5 = 113% per annum rate


There is ONE catch however

The company has 3 options in September
(1) They pay out the face value (unlikely)
(2) They keep the money and pay an extra 2.5% per annum penalty margin (unlikely but possible and not bad either as (3) below will have to apply one day in future but in meantime you earn great interest rate)
(3) They give you $102.50 worth of shares (most likely)

If they give you $102.50 worth of shares, the number of shares will be based on the VWAP (20 day average) share price during September. It takes a few days for the shares to hit your Comsec account. So there is a risk that by the time you come to sell the shares, the price has dropped from the price you “acquired” or “exchanged” them at. This risk can be managed using CFD’s where you sell short 1/20th of holding each day during the VWAP period and buy the CFD’s back on the day you sell the “real” shares from your Comsec a/c..