tag:blogger.com,1999:blog-20142791.post5985251316370772896..comments2024-03-11T07:41:19.149-04:00Comments on The Perfect Substitute: A couple of Sunday thoughtsUnknownnoreply@blogger.comBlogger3125tag:blogger.com,1999:blog-20142791.post-85679892562126585492008-05-12T13:51:00.000-04:002008-05-12T13:51:00.000-04:00Rob does make an interesting point; inflation is d...Rob does make an interesting point; inflation is definitely a factor in the decision. To which I offer the following: How does the price the Post Office chooses reflect their anticipated price increases in light of inflation? Presumably, it's on pace with inflation-- if they planned on increasing rates faster than expected inflation, (i.e. real prices will be rising), and made this known, then the Future stamps should trade at a premium above the current price of a first-class stamp, right?<BR/><BR/>Interestingly, the cost of a stamp has to be rounded to the nearest penny, so we get some small number issues with percentages and how they can relate to inflation. Though rolls of 100 stamps could help get around this.Matt E. Ryanhttps://www.blogger.com/profile/00290146649328322694noreply@blogger.comtag:blogger.com,1999:blog-20142791.post-74848058969185449132008-05-12T13:36:00.000-04:002008-05-12T13:36:00.000-04:00RE: paying a premium for the Forever stamp.You're ...RE: paying a premium for the Forever stamp.<BR/><BR/>You're ignoring the time value of money. If you pay 44 cents today for a Forever stamp, you will still be at a loss when postal rates increase to 44 cents. Simply put in the old cliche, a dollar today is worth more than a dollar tomorrow.<BR/><BR/>The incentive to purchase the Forever stamp is the time value of money. Your "discount" is paying today's postal rates, and there is no penalty for using it today. If you take away that discount by charging a premium, then what's the incentive for buying the Forever stamps? You are at a financial loss if you use that stamp before postal rates rise up to the future value of today's postal rates assuming interest cost as the risk-free rate.<BR/><BR/>Depending on how large the premium paid is above the current postal rates, you may have to wait many years before you receive fair value on your Forever stamp purchase.<BR/><BR/>(note: I've spent the past 15 minutes trying to plug a numerical example into my BAII-Plus, but the CFA prep has left my brain fried)<BR/><BR/>I think I can break it down this way. Even purchasing the Forever stamp today at 42 cents, assuming 5% as the risk-free rate of return, it will be 16 years and 7 months before you can break even on using the stamp at a value of 45 cents. Now, I believe the postal rate increases are going to be tied to inflation. Unless you think annual inflation is going to be less than 0.5% per year for the next 16 years, than the Forever stamp is not a good buy.rolubhttps://www.blogger.com/profile/05645203437505060534noreply@blogger.comtag:blogger.com,1999:blog-20142791.post-91100143305451558402008-05-11T21:58:00.000-04:002008-05-11T21:58:00.000-04:00"It's effectively a financial instrument, isn't it...<I>"It's effectively a financial instrument, isn't it? Does the SEC regulate this?"</I><BR/><BR/>The SEC doesn't regulate "financial instruments." The SEC regulates <B><I>securities</I></B> (and securities exchanges). You'd be hard-pressed to demonstrate that a stamp is a "security" any more than a check is a "security." (See, e.g., <I>SEC v. Howey</I>.)<BR/><BR/><I>"Why aren't these priced at a level above that of a first-class stamp? Am I missing something?</I><BR/><BR/>How about the price and cross elasticities of demand?KipEsquirehttps://www.blogger.com/profile/02326513032807027956noreply@blogger.com