Hi Watford - I agree that is the correct way to look at the...

Hi Watford - I agree that is the correct way to look at the relative value of TIM versus TIMPB. You should be more less indifferent to paying 11 cents for TIM or 63 cents for TIMPB (but you might want to apply a discount rate to TIMPB since the full 63 cent value is not achieved until the end of september).

Another interesting thing to look at is the future price of TIM. If you are expecting to TIM to go up in price by september, this reduces the anount you would want to pay for TIMPB to get the same percentage growth in the end.

For example, if you buy TIMPB at 62 cents today and TIM at 11 cents and TIM is worth 12 cents at the end of September then:

TIM (12-11)/12 = 9.1% gain

TIMPB (4*12+19.22)/62 = 8.4% gain.

You would therefore achieve a higher percentage gain buying TIM.

The higher the price for TIM in september, the lower price you would want to pay for TIMPB today. In the hopefully pleasant scenario of TIM selling for 25 cents at the end of september, you would not want to pay more than 52 cents for TIMPB. At 50 cents for TIM in september, you would not want to pay more than 48 cents for TIMPB today.

Hmmm, I say you would not want to pay but that is just relative to TIM. The absoute payoffs in the last scenario is very very very very good for either TIMPB (357%) or TIM (354%) so I wouldn't quibble over it.

Also, not that I believe the high TIM price is likely, but that knowing the differential percentage gain between the two exists sets a lower price that I would be willing to pay for TIMPB if I was expecting an increase in TIM.