APPENDIX

The option agreement, given in full below, may be
more briefly described as follows:
According to its terms I would, for instance, sell
John Smith one thousand shares at $20 per share,
which is much below the market price of, say, $30
a share. I would have the right to re-buy at $21
within six months, at $22 within twelve months, at
$23 within eighteen months, and so on, at an advance
in price of $1 every six months during five years, at
the expiration of which the contract would automatically
 terminate and the repurchase price at that time
would be $30.
In addition I would guarantee Smith a dividend
return of 7 per cent on the $20,000 received from
him.
The advance in the repurchase price means that, if
the option is exercised, Smith would receive not only
his 7 per cent, but $2 per share per annum above the
original purchase price of $20; that is, 10 per cent
per annum in addition to the 7 per cent, or 17 per
cent per annum altogether.
The chance that Smith would not get the full 17
per cent is simply the chance that within five years
the stock would be below $30, when Smith received
the stock. The only chance that Smith would not get
back his principal is the chance that the market price
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