.

[stochastic]

In the event that BS&T stops payments or changes its terms and conditions so that the intended pass through of interest is either stopped, pays lower interest or at a schedule that does not align with PPT bonds, PPT reserves the right to buy back the currently issued bonds by paying the coupon (currently 1% per day, accrued, simple interest) to current holders.

2.  In the event that interest payments from BST is below your expectations then PPT can buyback the bonds at 1% per day on the initial bond listing price of 1.00 BTC per bond.

The wording was intended to be tighter than simply "below expectations".  It is to cover the event where Pirate stops and winds up the whole thing, or changes the interest rate scheme materially so that we cannot pass through the intended 1%/day rate.  It does not give us the right to issue the bonds on day 1 at a premium and then immediately buy them back. 

Ok thanks I see, can we get, "It does not give us the right to issue the bonds on day 1 at a premium and then immediately buy them back," in the contract?  Also by immediately is there a cut-off point for that such as 1 hour or 1 day?

[PatrickHarnett]

I'm sure Burt will pick up the extra words. 

As for the "immediately" issue, it's more about the trigger event.  Personally I am assuming that at some point in the future there will be a day when this stops - either with some notice, or possibly no notice.  At that stage there should be four bonds in operation, cycling through a week apart.  To pick a day for illustration, if this was day#2 of a bond, there would also be day 9, 16 and 23 for each bond respectively.  Also, I am not sure if glbse allows the premium paid on each issued bond to be tracked to the purchaser as ideally some kind of pro-rating/refund would be a nice addition too. 

The world isn't perfect, and this is one of those cases (like buying a share) where the value might go down as well as up.  We're trying to cover the events before they happen, so the discussion is useful.

[Sukrim]

What do you think is Pirate's probability of defaulting?

I personally think it's 100% - but the real question is: Will he default during the 28 days I have invested in this bond?

[stochastic]

I'm sure Burt will pick up the extra words. 

As for the "immediately" issue, it's more about the trigger event.  Personally I am assuming that at some point in the future there will be a day when this stops - either with some notice, or possibly no notice.  At that stage there should be four bonds in operation, cycling through a week apart.  To pick a day for illustration, if this was day#2 of a bond, there would also be day 9, 16 and 23 for each bond respectively.  Also, I am not sure if glbse allows the premium paid on each issued bond to be tracked to the purchaser as ideally some kind of pro-rating/refund would be a nice addition too. 

The world isn't perfect, and this is one of those cases (like buying a share) where the value might go down as well as up.  We're trying to cover the events before they happen, so the discussion is useful.

Yea I am just trying to understand all the risks.  It would suck if to pays 1.06 for the bond and on the 5th day it is called for 1.05.

[notme]

What do you think is Pirate's probability of defaulting?

I personally think it's 100% - but the real question is: Will he default during the 28 days I have invested in this bond?

Nah, but he surely will lower his interest rates like he has before.

[Sukrim]

Oh, just as a snapshot, as it might be interesting in the future:
Currently (~2 days before the IPO) there are bids for 606 shares totalling 618.1834 BTC (giving operators a bit more than 4 BTC after accounting for the ticker symbol). There might be more to come though, considering the massive buys in mining bonds recently, quite a few people with big accounts seem to have started trusting GLBSE - or gotten around to use it, now that it no longer has this command line client (which I reallly loved btw.).

[notme]

Yes, I was expecting this terminology question to come up sooner or later.  So:

The thing you are buying will be worth exactly 1.28 BTC 28 days from when you buy it.  So in standard terminology 1.28 is the face value and it is a zero coupon bond.  I should will go back and redo the OP to reflect this more standard terminology.

Now given that terminology I need to more exactly describe the insured value.  Thinking about that now and I may be able to simplify the equation and description so please bear with me and I will get back to you all on that.

I have to go out now and I will get to all the other questions and concerns raised but I wanted to anounce this first:

The PPT stockholders voted on it and we have agreed to insure 25% of the face value of all outstanding bonds at all times against a Pirate default.   The face value of the bonds is 1.28.  25% of that is 0.32.  So in the case of a default you will be paid 0.32 for each bond.  More later!

Even if you payout early?  Or would that be 25% of (1.0 + 0.01*days)?

[stochastic]

Yes, I was expecting this terminology question to come up sooner or later.  So:

The thing you are buying will be worth exactly 1.28 BTC 28 days from when you buy it.  So in standard terminology 1.28 is the face value and it is a zero coupon bond.  I should will go back and redo the OP to reflect this more standard terminology.

Now given that terminology I need to more exactly describe the insured value.  Thinking about that now and I may be able to simplify the equation and description so please bear with me and I will get back to you all on that.

I have to go out now and I will get to all the other questions and concerns raised but I wanted to anounce this first:

The PPT stockholders voted on it and we have agreed to insure 25% of the face value of all outstanding bonds at all times against a Pirate default.   The face value of the bonds is 1.28.  25% of that is 0.32.  So in the case of a default you will be paid 0.32 for each bond.  More later!

This is great to have a exact value.

[The00Dustin]

Even if you payout early?  Or would that be 25% of (1.0 + 0.01*days)?

If there is a default, they won't be "paying out early."  A default means they don't get the money they invested back at all, and they are giving .32 back total for the >1.0 you paid.  Paying out early means the interest rate they were getting dropped to where they couldn't pay out .28 at the end of the 28 days, so they pay out for the days they could pay (the days that passed before the change) and don't sell anymore.

ETA: So default = you get .32 back per share & pay out early means you get (1.0 + 0.01*days) with the "insurance" not being used (and if you paid more over 1.0 than the number of days, you lose money, but much less than you would lose in a default).

[Rygon]

Oh, just as a snapshot, as it might be interesting in the future:
Currently (~2 days before the IPO) there are bids for 606 shares totalling 618.1834 BTC (giving operators a bit more than 4 BTC after accounting for the ticker symbol). There might be more to come though, considering the massive buys in mining bonds recently, quite a few people with big accounts seem to have started trusting GLBSE - or gotten around to use it, now that it no longer has this command line client (which I reallly loved btw.).

Even if all the shares are sold at 1.00, the operators will still have a profit because Pirate pays 7% per week, compounded over 4 weeks, or 28 days, is 31% - not 28%. It seems pretty reasonable though, considering the work to set up the bonds.

[stochastic]

How much funds are in the PPT default thing?

[PatrickHarnett]

How much funds are in the PPT default thing?

To cover the first round of bonds, probably 650-ish (Burt has the exact number). That's based on 7*100 less setup fees which were around 50.  With additional weeks and bonds, additional capital will be injected to maintain the capital reserve.  With a planned maximum of 8000 total, 25% it should build to 2560 coins in the next couple of weeks.

[xkrikl]

In the event that BS&T stops payments or changes its terms and conditions so that the intended pass through of interest is either stopped, pays lower interest or at a schedule that does not align with PPT bonds, PPT reserves the right to buy back the currently issued bonds by paying the coupon (currently 1% per day, accrued, simple interest) to current holders.

2.  In the event that interest payments from BST is below your expectations then PPT can buyback the bonds at 1% per day on the initial bond listing price of 1.00 BTC per bond.

The wording was intended to be tighter than simply "below expectations".  It is to cover the event where Pirate stops and winds up the whole thing, or changes the interest rate scheme materially so that we cannot pass through the intended 1%/day rate.  It does not give us the right to issue the bonds on day 1 at a premium and then immediately buy them back.  

Well defaulting is probably taken into account by everyone's risk appetite.
But this thing of early buyout will drag the bond price down during bond auction and also later on secondary market as the probability of change in the conditions of BS&T is high. What about changing it to p*(1+0.01x)/1.28 instead of 1+0.01x where p is the average price in the auction and x number of days since auction. I understand that this would push you to invest more than 1BTC per bond sold into BS&T which I guess wasn't originaly intended. Take it as suggestion that might bring auction prices higher and thus increase your profit.

EDIT:
stochastic caught me on this as I didn't do my home work to check the formula
the idea was to get p after auction (x=0) and 1.28 at maturity (x=28)
the correct one is: p+(1.28-p)*x/28

[stochastic]

In the event that BS&T stops payments or changes its terms and conditions so that the intended pass through of interest is either stopped, pays lower interest or at a schedule that does not align with PPT bonds, PPT reserves the right to buy back the currently issued bonds by paying the coupon (currently 1% per day, accrued, simple interest) to current holders.

2.  In the event that interest payments from BST is below your expectations then PPT can buyback the bonds at 1% per day on the initial bond listing price of 1.00 BTC per bond.

The wording was intended to be tighter than simply "below expectations".  It is to cover the event where Pirate stops and winds up the whole thing, or changes the interest rate scheme materially so that we cannot pass through the intended 1%/day rate.  It does not give us the right to issue the bonds on day 1 at a premium and then immediately buy them back.  

Well defaulting is probably taken into account by everyone's risk appetite.
But this thing of early buyout will drag the bond price down during bond auction and also later on secondary market as the probability of change in the conditions of BS&T is high. What about changing it to p*(1+0.01x)/1.28 instead of 1+0.01x where p is the average price in the auction and x number of days since auction. I understand that this would push you to invest more than 1BTC per bond sold into BS&T which I guess wasn't originaly intended. Take it as suggestion that might bring auction prices higher and thus increase your profit.

buy back price = p*(1+0.01*x)/1.28,

where p is 1.00 and x is 0

In the event of BST changing the interest rates lower that triggers the event, the bond buy back price would be:

1.00 * (1 + 0.01*0 ) / 1.28 = 0.78125

Am I missing something here?  This will always have the effect of lowering the bond price because in the case of a drop in the BST the bonds will be called at the p*(1+0.01*x)/1.28 buy back price and the bondholder will always lose money on the bond.

You think 1+0.01x would keep the bond price low, p*(1+0.01x)/1.28 is even lower.

Here is a whole table.  The buy back price is in the matrix for its respective p and x value.

Code:

#done in R
# p*(1+0.01*x)/1.28
# p is the average price of bonds sold at issuance
# x is the number of days from issuance

p <- matrix(seq(from=1.00, to=1.28, by=0.01),ncol=1)
x <- matrix(0:28,nrow=1)
z <- p%*%(1+0.01*x)/1.28
colnames(z)<-x # x as column names
rownames(z)<-p # p as row names
z

             0         1         2         3        4         5         6         7         8         9        10        11      12        13
1    0.7812500 0.7890625 0.7968750 0.8046875 0.812500 0.8203125 0.8281250 0.8359375 0.8437500 0.8515625 0.8593750 0.8671875 0.87500 0.8828125
1.01 0.7890625 0.7969531 0.8048437 0.8127344 0.820625 0.8285156 0.8364063 0.8442969 0.8521875 0.8600781 0.8679688 0.8758594 0.88375 0.8916406
1.02 0.7968750 0.8048437 0.8128125 0.8207813 0.828750 0.8367188 0.8446875 0.8526563 0.8606250 0.8685938 0.8765625 0.8845313 0.89250 0.9004687
1.03 0.8046875 0.8127344 0.8207813 0.8288281 0.836875 0.8449219 0.8529688 0.8610156 0.8690625 0.8771094 0.8851563 0.8932031 0.90125 0.9092969
1.04 0.8125000 0.8206250 0.8287500 0.8368750 0.845000 0.8531250 0.8612500 0.8693750 0.8775000 0.8856250 0.8937500 0.9018750 0.91000 0.9181250
1.05 0.8203125 0.8285156 0.8367188 0.8449219 0.853125 0.8613281 0.8695313 0.8777344 0.8859375 0.8941406 0.9023438 0.9105469 0.91875 0.9269531
1.06 0.8281250 0.8364063 0.8446875 0.8529688 0.861250 0.8695313 0.8778125 0.8860938 0.8943750 0.9026563 0.9109375 0.9192188 0.92750 0.9357813
1.07 0.8359375 0.8442969 0.8526563 0.8610156 0.869375 0.8777344 0.8860938 0.8944531 0.9028125 0.9111719 0.9195313 0.9278906 0.93625 0.9446094
1.08 0.8437500 0.8521875 0.8606250 0.8690625 0.877500 0.8859375 0.8943750 0.9028125 0.9112500 0.9196875 0.9281250 0.9365625 0.94500 0.9534375
1.09 0.8515625 0.8600781 0.8685938 0.8771094 0.885625 0.8941406 0.9026563 0.9111719 0.9196875 0.9282031 0.9367188 0.9452344 0.95375 0.9622656
1.1  0.8593750 0.8679688 0.8765625 0.8851563 0.893750 0.9023438 0.9109375 0.9195313 0.9281250 0.9367188 0.9453125 0.9539063 0.96250 0.9710937
1.11 0.8671875 0.8758594 0.8845313 0.8932031 0.901875 0.9105469 0.9192188 0.9278906 0.9365625 0.9452344 0.9539063 0.9625781 0.97125 0.9799219
1.12 0.8750000 0.8837500 0.8925000 0.9012500 0.910000 0.9187500 0.9275000 0.9362500 0.9450000 0.9537500 0.9625000 0.9712500 0.98000 0.9887500
1.13 0.8828125 0.8916406 0.9004687 0.9092969 0.918125 0.9269531 0.9357813 0.9446094 0.9534375 0.9622656 0.9710937 0.9799219 0.98875 0.9975781
1.14 0.8906250 0.8995313 0.9084375 0.9173438 0.926250 0.9351563 0.9440625 0.9529688 0.9618750 0.9707813 0.9796875 0.9885938 0.99750 1.0064062
1.15 0.8984375 0.9074219 0.9164062 0.9253906 0.934375 0.9433594 0.9523437 0.9613281 0.9703125 0.9792969 0.9882812 0.9972656 1.00625 1.0152344
1.16 0.9062500 0.9153125 0.9243750 0.9334375 0.942500 0.9515625 0.9606250 0.9696875 0.9787500 0.9878125 0.9968750 1.0059375 1.01500 1.0240625
1.17 0.9140625 0.9232031 0.9323438 0.9414844 0.950625 0.9597656 0.9689062 0.9780469 0.9871875 0.9963281 1.0054687 1.0146094 1.02375 1.0328906
1.18 0.9218750 0.9310937 0.9403125 0.9495313 0.958750 0.9679687 0.9771875 0.9864062 0.9956250 1.0048438 1.0140625 1.0232813 1.03250 1.0417187
1.19 0.9296875 0.9389844 0.9482812 0.9575781 0.966875 0.9761719 0.9854688 0.9947656 1.0040625 1.0133594 1.0226562 1.0319531 1.04125 1.0505469
1.2  0.9375000 0.9468750 0.9562500 0.9656250 0.975000 0.9843750 0.9937500 1.0031250 1.0125000 1.0218750 1.0312500 1.0406250 1.05000 1.0593750
1.21 0.9453125 0.9547656 0.9642187 0.9736719 0.983125 0.9925781 1.0020312 1.0114844 1.0209375 1.0303906 1.0398437 1.0492969 1.05875 1.0682031
1.22 0.9531250 0.9626562 0.9721875 0.9817187 0.991250 1.0007812 1.0103125 1.0198438 1.0293750 1.0389063 1.0484375 1.0579688 1.06750 1.0770312
1.23 0.9609375 0.9705469 0.9801562 0.9897656 0.999375 1.0089844 1.0185937 1.0282031 1.0378125 1.0474219 1.0570312 1.0666406 1.07625 1.0858594
1.24 0.9687500 0.9784375 0.9881250 0.9978125 1.007500 1.0171875 1.0268750 1.0365625 1.0462500 1.0559375 1.0656250 1.0753125 1.08500 1.0946875
1.25 0.9765625 0.9863281 0.9960937 1.0058594 1.015625 1.0253906 1.0351563 1.0449219 1.0546875 1.0644531 1.0742188 1.0839844 1.09375 1.1035156
1.26 0.9843750 0.9942187 1.0040625 1.0139063 1.023750 1.0335938 1.0434375 1.0532812 1.0631250 1.0729688 1.0828125 1.0926563 1.10250 1.1123437
1.27 0.9921875 1.0021094 1.0120313 1.0219531 1.031875 1.0417969 1.0517188 1.0616406 1.0715625 1.0814844 1.0914063 1.1013281 1.11125 1.1211719
1.28 1.0000000 1.0100000 1.0200000 1.0300000 1.040000 1.0500000 1.0600000 1.0700000 1.0800000 1.0900000 1.1000000 1.1100000 1.12000 1.1300000
            14        15        16        17        18        19       20        21        22        23        24        25        26        27   28
1    0.8906250 0.8984375 0.9062500 0.9140625 0.9218750 0.9296875 0.937500 0.9453125 0.9531250 0.9609375 0.9687500 0.9765625 0.9843750 0.9921875 1.00
1.01 0.8995313 0.9074219 0.9153125 0.9232031 0.9310937 0.9389844 0.946875 0.9547656 0.9626562 0.9705469 0.9784375 0.9863281 0.9942187 1.0021094 1.01
1.02 0.9084375 0.9164062 0.9243750 0.9323438 0.9403125 0.9482812 0.956250 0.9642187 0.9721875 0.9801562 0.9881250 0.9960937 1.0040625 1.0120313 1.02
1.03 0.9173438 0.9253906 0.9334375 0.9414844 0.9495313 0.9575781 0.965625 0.9736719 0.9817187 0.9897656 0.9978125 1.0058594 1.0139063 1.0219531 1.03
1.04 0.9262500 0.9343750 0.9425000 0.9506250 0.9587500 0.9668750 0.975000 0.9831250 0.9912500 0.9993750 1.0075000 1.0156250 1.0237500 1.0318750 1.04
1.05 0.9351563 0.9433594 0.9515625 0.9597656 0.9679687 0.9761719 0.984375 0.9925781 1.0007812 1.0089844 1.0171875 1.0253906 1.0335938 1.0417969 1.05
1.06 0.9440625 0.9523437 0.9606250 0.9689062 0.9771875 0.9854688 0.993750 1.0020312 1.0103125 1.0185937 1.0268750 1.0351563 1.0434375 1.0517188 1.06
1.07 0.9529688 0.9613281 0.9696875 0.9780469 0.9864062 0.9947656 1.003125 1.0114844 1.0198438 1.0282031 1.0365625 1.0449219 1.0532812 1.0616406 1.07
1.08 0.9618750 0.9703125 0.9787500 0.9871875 0.9956250 1.0040625 1.012500 1.0209375 1.0293750 1.0378125 1.0462500 1.0546875 1.0631250 1.0715625 1.08
1.09 0.9707813 0.9792969 0.9878125 0.9963281 1.0048438 1.0133594 1.021875 1.0303906 1.0389063 1.0474219 1.0559375 1.0644531 1.0729688 1.0814844 1.09
1.1  0.9796875 0.9882812 0.9968750 1.0054687 1.0140625 1.0226562 1.031250 1.0398437 1.0484375 1.0570312 1.0656250 1.0742188 1.0828125 1.0914063 1.10
1.11 0.9885938 0.9972656 1.0059375 1.0146094 1.0232813 1.0319531 1.040625 1.0492969 1.0579688 1.0666406 1.0753125 1.0839844 1.0926563 1.1013281 1.11
1.12 0.9975000 1.0062500 1.0150000 1.0237500 1.0325000 1.0412500 1.050000 1.0587500 1.0675000 1.0762500 1.0850000 1.0937500 1.1025000 1.1112500 1.12
1.13 1.0064062 1.0152344 1.0240625 1.0328906 1.0417187 1.0505469 1.059375 1.0682031 1.0770312 1.0858594 1.0946875 1.1035156 1.1123437 1.1211719 1.13
1.14 1.0153125 1.0242187 1.0331250 1.0420312 1.0509375 1.0598437 1.068750 1.0776563 1.0865625 1.0954687 1.1043750 1.1132813 1.1221875 1.1310938 1.14
1.15 1.0242187 1.0332031 1.0421875 1.0511719 1.0601562 1.0691406 1.078125 1.0871094 1.0960937 1.1050781 1.1140625 1.1230469 1.1320312 1.1410156 1.15
1.16 1.0331250 1.0421875 1.0512500 1.0603125 1.0693750 1.0784375 1.087500 1.0965625 1.1056250 1.1146875 1.1237500 1.1328125 1.1418750 1.1509375 1.16
1.17 1.0420312 1.0511719 1.0603125 1.0694531 1.0785937 1.0877344 1.096875 1.1060156 1.1151562 1.1242969 1.1334375 1.1425781 1.1517187 1.1608594 1.17
1.18 1.0509375 1.0601562 1.0693750 1.0785937 1.0878125 1.0970312 1.106250 1.1154688 1.1246875 1.1339062 1.1431250 1.1523437 1.1615625 1.1707812 1.18
1.19 1.0598437 1.0691406 1.0784375 1.0877344 1.0970312 1.1063281 1.115625 1.1249219 1.1342188 1.1435156 1.1528125 1.1621094 1.1714062 1.1807031 1.19
1.2  1.0687500 1.0781250 1.0875000 1.0968750 1.1062500 1.1156250 1.125000 1.1343750 1.1437500 1.1531250 1.1625000 1.1718750 1.1812500 1.1906250 1.20
1.21 1.0776563 1.0871094 1.0965625 1.1060156 1.1154688 1.1249219 1.134375 1.1438281 1.1532813 1.1627344 1.1721875 1.1816406 1.1910937 1.2005469 1.21
1.22 1.0865625 1.0960937 1.1056250 1.1151562 1.1246875 1.1342188 1.143750 1.1532813 1.1628125 1.1723438 1.1818750 1.1914062 1.2009375 1.2104687 1.22
1.23 1.0954687 1.1050781 1.1146875 1.1242969 1.1339062 1.1435156 1.153125 1.1627344 1.1723438 1.1819531 1.1915625 1.2011719 1.2107812 1.2203906 1.23
1.24 1.1043750 1.1140625 1.1237500 1.1334375 1.1431250 1.1528125 1.162500 1.1721875 1.1818750 1.1915625 1.2012500 1.2109375 1.2206250 1.2303125 1.24
1.25 1.1132813 1.1230469 1.1328125 1.1425781 1.1523437 1.1621094 1.171875 1.1816406 1.1914062 1.2011719 1.2109375 1.2207031 1.2304688 1.2402344 1.25
1.26 1.1221875 1.1320312 1.1418750 1.1517187 1.1615625 1.1714062 1.181250 1.1910937 1.2009375 1.2107812 1.2206250 1.2304688 1.2403125 1.2501563 1.26
1.27 1.1310938 1.1410156 1.1509375 1.1608594 1.1707812 1.1807031 1.190625 1.2005469 1.2104687 1.2203906 1.2303125 1.2402344 1.2501563 1.2600781 1.27
1.28 1.1400000 1.1500000 1.1600000 1.1700000 1.1800000 1.1900000 1.200000 1.2100000 1.2200000 1.2300000 1.2400000 1.2500000 1.2600000 1.2700000 1.28

What would increase the price of the bonds at issuance and thus lower the return to bondholders is if the issuers took on more risk.  The higher the risk then the higher the potential return should be.  The issuers would need to guarantee the daily 0.01 increase in par value up to 1.28 BTC.  If there is a lowering of interest rates by BST then the loss of value by the PPT team would have to be made up with the insurance deposits that PPT keeps.

Other than that I think the current plan is sound.

[xkrikl]

In the event that BS&T stops payments or changes its terms and conditions so that the intended pass through of interest is either stopped, pays lower interest or at a schedule that does not align with PPT bonds, PPT reserves the right to buy back the currently issued bonds by paying the coupon (currently 1% per day, accrued, simple interest) to current holders.

2.  In the event that interest payments from BST is below your expectations then PPT can buyback the bonds at 1% per day on the initial bond listing price of 1.00 BTC per bond.

The wording was intended to be tighter than simply "below expectations".  It is to cover the event where Pirate stops and winds up the whole thing, or changes the interest rate scheme materially so that we cannot pass through the intended 1%/day rate.  It does not give us the right to issue the bonds on day 1 at a premium and then immediately buy them back.  

Well defaulting is probably taken into account by everyone's risk appetite.
But this thing of early buyout will drag the bond price down during bond auction and also later on secondary market as the probability of change in the conditions of BS&T is high. What about changing it to p*(1+0.01x)/1.28 instead of 1+0.01x where p is the average price in the auction and x number of days since auction. I understand that this would push you to invest more than 1BTC per bond sold into BS&T which I guess wasn't originaly intended. Take it as suggestion that might bring auction prices higher and thus increase your profit.

buy back price = p*(1+0.01*x)/1.28,

where p is 1.00 and x is 0

In the event of BST changing the interest rates lower that triggers the event, the bond buy back price would be:

1.00 * (1 + 0.01*0 ) / 1.28 = 0.78125

Am I missing something here?  This will always have the effect of lowering the bond price because in the case of a drop in the BST the bonds will be called at the p*(1+0.01*x)/1.28 buy back price and the bondholder will always lose money on the bond.

You think 1+0.01x would keep the bond price low, p*(1+0.01x)/1.28 is even lower.

Here is a whole table.  The buy back price is in the matrix for its respective p and x value.

...

What would increase the price of the bonds at issuance and thus lower the return to bondholders is if the issuers took on more risk.  The higher the risk then the higher the potential return should be.  The issuers would need to guarantee the daily 0.01 increase in par value up to 1.28 BTC.  If there is a lowering of interest rates by BST then the loss of value by the PPT team would have to be made up with the insurance deposits that PPT keeps.

Other than that I think the current plan is sound.

Sorry, my mistake - I did put the formula down quickly and I didn't check it well.
The idea is that in case of buy back they would pay the auction average price. And in the following 28 days it would always rise by 1/28th of (1.28-p) so it would be 1.28 on the maturity day.
So the correct formula should be:
p+(1.28-p)*x/28
so for x=0 we get p
and for x=28 we get 1.28

[stochastic]

In the event that BS&T stops payments or changes its terms and conditions so that the intended pass through of interest is either stopped, pays lower interest or at a schedule that does not align with PPT bonds, PPT reserves the right to buy back the currently issued bonds by paying the coupon (currently 1% per day, accrued, simple interest) to current holders.

2.  In the event that interest payments from BST is below your expectations then PPT can buyback the bonds at 1% per day on the initial bond listing price of 1.00 BTC per bond.

The wording was intended to be tighter than simply "below expectations".  It is to cover the event where Pirate stops and winds up the whole thing, or changes the interest rate scheme materially so that we cannot pass through the intended 1%/day rate.  It does not give us the right to issue the bonds on day 1 at a premium and then immediately buy them back.  

Well defaulting is probably taken into account by everyone's risk appetite.
But this thing of early buyout will drag the bond price down during bond auction and also later on secondary market as the probability of change in the conditions of BS&T is high. What about changing it to p*(1+0.01x)/1.28 instead of 1+0.01x where p is the average price in the auction and x number of days since auction. I understand that this would push you to invest more than 1BTC per bond sold into BS&T which I guess wasn't originaly intended. Take it as suggestion that might bring auction prices higher and thus increase your profit.

buy back price = p*(1+0.01*x)/1.28,

where p is 1.00 and x is 0

In the event of BST changing the interest rates lower that triggers the event, the bond buy back price would be:

1.00 * (1 + 0.01*0 ) / 1.28 = 0.78125

Am I missing something here?  This will always have the effect of lowering the bond price because in the case of a drop in the BST the bonds will be called at the p*(1+0.01*x)/1.28 buy back price and the bondholder will always lose money on the bond.

You think 1+0.01x would keep the bond price low, p*(1+0.01x)/1.28 is even lower.

Here is a whole table.  The buy back price is in the matrix for its respective p and x value.

...

What would increase the price of the bonds at issuance and thus lower the return to bondholders is if the issuers took on more risk.  The higher the risk then the higher the potential return should be.  The issuers would need to guarantee the daily 0.01 increase in par value up to 1.28 BTC.  If there is a lowering of interest rates by BST then the loss of value by the PPT team would have to be made up with the insurance deposits that PPT keeps.

Other than that I think the current plan is sound.

Sorry, my mistake - I did put the formula down quickly and I didn't check it well.
The idea is that in case of buy back they would pay the auction average price. And in the following 28 days it would always rise by 1/28th of (1.28-p) so it would be 1.28 on the maturity day.
So the correct formula should be:
p+(1.28-p)*x/28
so for x=0 we get p of what?
and for x=28 we get 1.28 I am assuming with a p of 1.00 BTC

This makes more sense now

Code:

        0        1        2        3        4        5        6      7        8        9       10       11       12       13    14       15       16
1    1.00 1.010000 1.020000 1.030000 1.040000 1.050000 1.060000 1.0700 1.080000 1.090000 1.100000 1.110000 1.120000 1.130000 1.140 1.150000 1.160000
1.01 1.01 1.019643 1.029286 1.038929 1.048571 1.058214 1.067857 1.0775 1.087143 1.096786 1.106429 1.116071 1.125714 1.135357 1.145 1.154643 1.164286
1.02 1.02 1.029286 1.038571 1.047857 1.057143 1.066429 1.075714 1.0850 1.094286 1.103571 1.112857 1.122143 1.131429 1.140714 1.150 1.159286 1.168571
1.03 1.03 1.038929 1.047857 1.056786 1.065714 1.074643 1.083571 1.0925 1.101429 1.110357 1.119286 1.128214 1.137143 1.146071 1.155 1.163929 1.172857
1.04 1.04 1.048571 1.057143 1.065714 1.074286 1.082857 1.091429 1.1000 1.108571 1.117143 1.125714 1.134286 1.142857 1.151429 1.160 1.168571 1.177143
1.05 1.05 1.058214 1.066429 1.074643 1.082857 1.091071 1.099286 1.1075 1.115714 1.123929 1.132143 1.140357 1.148571 1.156786 1.165 1.173214 1.181429
1.06 1.06 1.067857 1.075714 1.083571 1.091429 1.099286 1.107143 1.1150 1.122857 1.130714 1.138571 1.146429 1.154286 1.162143 1.170 1.177857 1.185714
1.07 1.07 1.077500 1.085000 1.092500 1.100000 1.107500 1.115000 1.1225 1.130000 1.137500 1.145000 1.152500 1.160000 1.167500 1.175 1.182500 1.190000
1.08 1.08 1.087143 1.094286 1.101429 1.108571 1.115714 1.122857 1.1300 1.137143 1.144286 1.151429 1.158571 1.165714 1.172857 1.180 1.187143 1.194286
1.09 1.09 1.096786 1.103571 1.110357 1.117143 1.123929 1.130714 1.1375 1.144286 1.151071 1.157857 1.164643 1.171429 1.178214 1.185 1.191786 1.198571
1.1  1.10 1.106429 1.112857 1.119286 1.125714 1.132143 1.138571 1.1450 1.151429 1.157857 1.164286 1.170714 1.177143 1.183571 1.190 1.196429 1.202857
1.11 1.11 1.116071 1.122143 1.128214 1.134286 1.140357 1.146429 1.1525 1.158571 1.164643 1.170714 1.176786 1.182857 1.188929 1.195 1.201071 1.207143
1.12 1.12 1.125714 1.131429 1.137143 1.142857 1.148571 1.154286 1.1600 1.165714 1.171429 1.177143 1.182857 1.188571 1.194286 1.200 1.205714 1.211429
1.13 1.13 1.135357 1.140714 1.146071 1.151429 1.156786 1.162143 1.1675 1.172857 1.178214 1.183571 1.188929 1.194286 1.199643 1.205 1.210357 1.215714
1.14 1.14 1.145000 1.150000 1.155000 1.160000 1.165000 1.170000 1.1750 1.180000 1.185000 1.190000 1.195000 1.200000 1.205000 1.210 1.215000 1.220000
1.15 1.15 1.154643 1.159286 1.163929 1.168571 1.173214 1.177857 1.1825 1.187143 1.191786 1.196429 1.201071 1.205714 1.210357 1.215 1.219643 1.224286
1.16 1.16 1.164286 1.168571 1.172857 1.177143 1.181429 1.185714 1.1900 1.194286 1.198571 1.202857 1.207143 1.211429 1.215714 1.220 1.224286 1.228571
1.17 1.17 1.173929 1.177857 1.181786 1.185714 1.189643 1.193571 1.1975 1.201429 1.205357 1.209286 1.213214 1.217143 1.221071 1.225 1.228929 1.232857
1.18 1.18 1.183571 1.187143 1.190714 1.194286 1.197857 1.201429 1.2050 1.208571 1.212143 1.215714 1.219286 1.222857 1.226429 1.230 1.233571 1.237143
1.19 1.19 1.193214 1.196429 1.199643 1.202857 1.206071 1.209286 1.2125 1.215714 1.218929 1.222143 1.225357 1.228571 1.231786 1.235 1.238214 1.241429
1.2  1.20 1.202857 1.205714 1.208571 1.211429 1.214286 1.217143 1.2200 1.222857 1.225714 1.228571 1.231429 1.234286 1.237143 1.240 1.242857 1.245714
1.21 1.21 1.212500 1.215000 1.217500 1.220000 1.222500 1.225000 1.2275 1.230000 1.232500 1.235000 1.237500 1.240000 1.242500 1.245 1.247500 1.250000
1.22 1.22 1.222143 1.224286 1.226429 1.228571 1.230714 1.232857 1.2350 1.237143 1.239286 1.241429 1.243571 1.245714 1.247857 1.250 1.252143 1.254286
1.23 1.23 1.231786 1.233571 1.235357 1.237143 1.238929 1.240714 1.2425 1.244286 1.246071 1.247857 1.249643 1.251429 1.253214 1.255 1.256786 1.258571
1.24 1.24 1.241429 1.242857 1.244286 1.245714 1.247143 1.248571 1.2500 1.251429 1.252857 1.254286 1.255714 1.257143 1.258571 1.260 1.261429 1.262857
1.25 1.25 1.251071 1.252143 1.253214 1.254286 1.255357 1.256429 1.2575 1.258571 1.259643 1.260714 1.261786 1.262857 1.263929 1.265 1.266071 1.267143
1.26 1.26 1.260714 1.261429 1.262143 1.262857 1.263571 1.264286 1.2650 1.265714 1.266429 1.267143 1.267857 1.268571 1.269286 1.270 1.270714 1.271429
1.27 1.27 1.270357 1.270714 1.271071 1.271429 1.271786 1.272143 1.2725 1.272857 1.273214 1.273571 1.273929 1.274286 1.274643 1.275 1.275357 1.275714
1.28 1.28 1.280000 1.280000 1.280000 1.280000 1.280000 1.280000 1.2800 1.280000 1.280000 1.280000 1.280000 1.280000 1.280000 1.280 1.280000 1.280000
           17       18       19       20     21       22       23       24       25       26       27   28
1    1.170000 1.180000 1.190000 1.200000 1.2100 1.220000 1.230000 1.240000 1.250000 1.260000 1.270000 1.28
1.01 1.173929 1.183571 1.193214 1.202857 1.2125 1.222143 1.231786 1.241429 1.251071 1.260714 1.270357 1.28
1.02 1.177857 1.187143 1.196429 1.205714 1.2150 1.224286 1.233571 1.242857 1.252143 1.261429 1.270714 1.28
1.03 1.181786 1.190714 1.199643 1.208571 1.2175 1.226429 1.235357 1.244286 1.253214 1.262143 1.271071 1.28
1.04 1.185714 1.194286 1.202857 1.211429 1.2200 1.228571 1.237143 1.245714 1.254286 1.262857 1.271429 1.28
1.05 1.189643 1.197857 1.206071 1.214286 1.2225 1.230714 1.238929 1.247143 1.255357 1.263571 1.271786 1.28
1.06 1.193571 1.201429 1.209286 1.217143 1.2250 1.232857 1.240714 1.248571 1.256429 1.264286 1.272143 1.28
1.07 1.197500 1.205000 1.212500 1.220000 1.2275 1.235000 1.242500 1.250000 1.257500 1.265000 1.272500 1.28
1.08 1.201429 1.208571 1.215714 1.222857 1.2300 1.237143 1.244286 1.251429 1.258571 1.265714 1.272857 1.28
1.09 1.205357 1.212143 1.218929 1.225714 1.2325 1.239286 1.246071 1.252857 1.259643 1.266429 1.273214 1.28
1.1  1.209286 1.215714 1.222143 1.228571 1.2350 1.241429 1.247857 1.254286 1.260714 1.267143 1.273571 1.28
1.11 1.213214 1.219286 1.225357 1.231429 1.2375 1.243571 1.249643 1.255714 1.261786 1.267857 1.273929 1.28
1.12 1.217143 1.222857 1.228571 1.234286 1.2400 1.245714 1.251429 1.257143 1.262857 1.268571 1.274286 1.28
1.13 1.221071 1.226429 1.231786 1.237143 1.2425 1.247857 1.253214 1.258571 1.263929 1.269286 1.274643 1.28
1.14 1.225000 1.230000 1.235000 1.240000 1.2450 1.250000 1.255000 1.260000 1.265000 1.270000 1.275000 1.28
1.15 1.228929 1.233571 1.238214 1.242857 1.2475 1.252143 1.256786 1.261429 1.266071 1.270714 1.275357 1.28
1.16 1.232857 1.237143 1.241429 1.245714 1.2500 1.254286 1.258571 1.262857 1.267143 1.271429 1.275714 1.28
1.17 1.236786 1.240714 1.244643 1.248571 1.2525 1.256429 1.260357 1.264286 1.268214 1.272143 1.276071 1.28
1.18 1.240714 1.244286 1.247857 1.251429 1.2550 1.258571 1.262143 1.265714 1.269286 1.272857 1.276429 1.28
1.19 1.244643 1.247857 1.251071 1.254286 1.2575 1.260714 1.263929 1.267143 1.270357 1.273571 1.276786 1.28
1.2  1.248571 1.251429 1.254286 1.257143 1.2600 1.262857 1.265714 1.268571 1.271429 1.274286 1.277143 1.28
1.21 1.252500 1.255000 1.257500 1.260000 1.2625 1.265000 1.267500 1.270000 1.272500 1.275000 1.277500 1.28
1.22 1.256429 1.258571 1.260714 1.262857 1.2650 1.267143 1.269286 1.271429 1.273571 1.275714 1.277857 1.28
1.23 1.260357 1.262143 1.263929 1.265714 1.2675 1.269286 1.271071 1.272857 1.274643 1.276429 1.278214 1.28
1.24 1.264286 1.265714 1.267143 1.268571 1.2700 1.271429 1.272857 1.274286 1.275714 1.277143 1.278571 1.28
1.25 1.268214 1.269286 1.270357 1.271429 1.2725 1.273571 1.274643 1.275714 1.276786 1.277857 1.278929 1.28
1.26 1.272143 1.272857 1.273571 1.274286 1.2750 1.275714 1.276429 1.277143 1.277857 1.278571 1.279286 1.28
1.27 1.276071 1.276429 1.276786 1.277143 1.2775 1.277857 1.278214 1.278571 1.278929 1.279286 1.279643 1.28
1.28 1.280000 1.280000 1.280000 1.280000 1.2800 1.280000 1.280000 1.280000 1.280000 1.280000 1.280000 1.28

[xkrikl]

Sorry, my mistake - I did put the formula down quickly and I didn't check it well.
The idea is that in case of buy back they would pay the auction average price. And in the following 28 days it would always rise by 1/28th of (1.28-p) so it would be 1.28 on the maturity day.
So the correct formula should be:
p+(1.28-p)*x/28
so for x=0 we get p of what? p = average price of bonds sold in auction
and for x=28 we get 1.28 I am assuming with a p of 1.00 BTC with any p

This makes more sense now

nice table
x - number of days since auction (columns in your table)
p - average auction price (rows in your table)

eg:
1000 bonds sold at 1.09, 500 bonds sold at 1.12 gives us an average price of p=1.10
if they are bought back after 14 days (x=14)
the buy back price would be 1.10+(1.28-1.10)*14/28=1.10+0.18/2=1.19

[brendio]

I think p would need to be the weighted average price to be fair to the issuer. It will mean that some buyers still lose, if they paid more than p, whereas others would gain, if they paid less than p. Using a weighted average, rather than a simple numerical average, will ensure that amount gained by winners = amount lost by losers and the issuer is no better or worse off.

[xkrikl]

I think p would need to be the weighted average price to be fair to the issuer. It will mean that some buyers still lose, if they paid more than p, whereas others would gain, if they paid less than p. Using a weighted average, rather than a simple numerical average, will ensure that amount gained by winners = amount lost by losers and the issuer is no better or worse off.

yep, you are right
I meant average of all sold bonds (see my exapmle) which is weighted average if you take pairs (price, number of bonds sold for that price).

[imsaguy]

I saw we just give out bandaids in the case of default.. ow!