POWER POINT PRESENTATION - THE SWISS SURPRISE & BILL PETTY 1

POWER POINT PRESENTATION - THE SWISS SURPRISE & BILL...

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Group No. 1 FINA 503 Secc. 502 Prof. José Pérez
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Imagine  getting  a  bill  for  $125  billion  you  did  not  know  you  owed.  That  actually happened to the residents, called “burghers”, of the town of Ticino,  Switzerland. A court in Brooklyn, New York, ordered Ticino to pay a group  of American investors. The investors had sued in the Brooklyn court over a  loss they claimed in connection with the 1967 failure of Inter Change Bank,  a tiny bank in Ticino. The burghers had known about the suit, but thought  the matter was trivial, and were naturally stunned by the bill.  The  root  of  Ticino’s  problem  was  a  deposit  made  in  1966.  The  estate  of  Sterling Granville Higgins deposited $600 million of options on Venezuelan  oil and mineral deposits in the Inter Change Bank. The deposit agreement  required the bank to pay an interest rate of 1% per week. (No wonder the  bank failed the next year!) In October 1994, the New York State Supreme  Court  in  Brooklyn  ruled  that  Ticino  had  to  pay  1%  interest  per  week  compounded weekly for the 7 years between the date of deposit and the  date Ticino had the bank liquidated and interest at the rate of 8.54% EAR  for the remaining 21 years since the bank’s liquidation.
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1. At an interest rate of 1% per week, how  long does it take for $600 million to grow  to $1 billion? To  $10 billion? a.  To 1 billion  =  51.08 years
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This note was uploaded on 01/25/2011 for the course FIN 503 taught by Professor Joseperez during the Spring '10 term at Universidad del Turabo.

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POWER POINT PRESENTATION - THE SWISS SURPRISE & BILL...

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