Haute Lumière

Commerce · I.03 · MMXXVI · daylight

La Bourse  /  Volume I  /  Nº I.03  /  Workbook — the student

WORKBOOK — THE STUDENT

Chapter I.03 · The First Instrument

For the person studying this alone, or in a seminar, with no organisation and no signature authority. You already sign things. The question this workbook asks is whether you know what you are signing, and whether you could write one yourself that somebody else would sign.

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WHY THIS WORKBOOK IS DIFFERENT

The chapter is written for someone with a customer list and a cost of capital. You have neither, and the temptation is to read the instrument as a thing to understand now and use later.

Do not. An instrument is a piece of writing, and writing is a skill that is learned by drafting. The person who can put five answers on one page — who is on the other side, how much moves, for how long, at what price, and what fact turns the money on — is already unusual in any room, at any age, and the ability transfers immediately to a flat-share, a freelance engagement, a shared project, a dissertation supervision, a band, a loan between friends, and the first job offer you receive.

More: you are on the buying side of dozens of instruments already. Tenancy agreements, phone contracts, course registrations, subscriptions, the thing you clicked through last week. This workbook teaches you to read those with the arithmetic in your hand, which is worth actual money before you graduate.

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PART ONE — DISCOVERY

Days 1–30: find the instruments already around you

Exercise 1.1 — The five answers, on things you have already signed (90 minutes)

Collect four documents you are currently bound by. A tenancy, a phone contract, a subscription, a bank account, a student loan, a job offer — whatever you actually have. For each, fill in the five answers:

You will find one of two things, and both are the exercise. Either a column is blank — most commonly trigger, because you never established what fact turns an obligation on — or the price column contains a number you cannot convert into an annual rate. Note which. That is the shape of your own blind spot, and it is the same one the treasurer in the chapter has.

Exercise 1.2 — Find a prepaid offtake near you (one week)

They are everywhere once you look. A season ticket. A term's rent paid in advance for a reduction. A gym membership paid annually rather than monthly. A vegetable box scheme. A crowdfunded product that ships in nine months. A pre-ordered book.

Find three. For each, write one sentence answering: who is funding whom, and what are they receiving for it?

The crowdfunding case is the sharpest, and worth dwelling on. A backer sends money today for a thing that does not exist, at a discount to the eventual price, with no security and frequently no shortfall clause at all. Read the chapter's second honest negative and then read a crowdfunding page, and you will understand the entire failure literature of that industry in about four minutes.

Exercise 1.3 — The appreciative interview (45 minutes, with another person)

Find somebody who runs anything with money in it — a society treasurer, a market trader, a freelancer, a small landlord, a parent running a household budget — and ask exactly this:

"Tell me about a time somebody paid you before you had done the work, or you paid somebody before they had. How did it come about? What made you willing? What did you put in writing, and what did you leave out?"

Take notes on the conditions of trust, not on the transaction. You are assembling the informal version of a shortfall clause, and you will find people have invented one without a name for it: "he's local", "I'd know where to find her", "they'd never work in this town again."

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PART TWO — THE ARITHMETIC

Days 31–50: learn to convert any price into a rate

Exercise 2.1 — Reproduce the chapter's figures (2 hours)

Do not take them on trust. Open lib/verify/I_03.py, read it, then compute these independently — by hand, in a spreadsheet, in whatever language you use.

1. The list value, free goods and annualised yield for a £200,000 prepayment at a 3 percent discount. Confirm £206,186, £6,186 and 6.19 percent.
2. The surplus, average capital × spread, and both parties' shares. Confirm they sum to £5,000 exactly.
3. Both ends of the window, d = y / (2 + y). Confirm 1.961 percent and 4.306 percent.
4. The two break-even sizes, £360,000 and £60,000.
5. Both tolerable failure rates, 0.235 percent and 9.4 percent.

Then run python3 lib/verify.py I.03 and check your answers against the machine's. Where you disagree, find out which of you is right before reading on. That habit is the entire method.

Exercise 2.2 — The annualisation drill (45 minutes, then five minutes a week)

Convert each of these into an annual rate. The arithmetic is elementary; the habit is what you are building.

1. "2 percent discount for payment in 10 days instead of 30." (A classic: the money is early by twenty days, so the annualised cost of declining it is roughly 0.02/0.98 × 365/20 — over 37 percent. Firms decline it every day.)
2. "Pay annually and get one month free."
3. "£40 now, or £4 a month for twelve months."
4. A prepaid offtake at a 5 percent discount, delivered evenly. (Answer: 2d/(1−d) = 10.53 percent.)
5. The same at a 5 percent discount, but everything delivered in the final month. (Now the money is outstanding the whole year: 5.26 percent. Same discount, half the return. Delivery profile is not a detail.)

Keep this drill running for a term. Every price you meet becomes a rate, and after about eight weeks you will do it without noticing.

Exercise 2.3 — Find the honest negative (30 minutes)

The chapter names two: the deal too small to pay for its own paperwork, and the delivery reliability the instrument demands. Write, in your own words, why each is in the chapter.

Then do the harder half. Take an arrangement you personally favour — a policy, a scheme, a way of doing things — and write the threshold below which it fails. Not an objection. A number, and what is on each side of it. If you cannot produce one, you are holding a preference rather than a position, which is useful to know and not a criticism.

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PART THREE — DREAM AND DESIGN

Days 51–75: draft one

Exercise 3.1 — The present-tense description (45 minutes)

Write 400 words describing, in the present tense, a working life in which your agreements are written by you. Not "I would like to negotiate better" — "I read the terms, I compute the rate, and I bring the window."

Constraints:

• Describe one specific negotiation, in ordinary detail.
• Include the moment the other party checks your arithmetic and it holds.
• Include one thing you concede, and why conceding it was correct.

Exercise 3.2 — Draft your one page (2 hours)

This is the central artifact of the workbook. Find a real arrangement in your own life that has money, time or obligation in it and currently exists only as an understanding. Shared costs in a flat. A friend's website you are building. A society's equipment fund. A tutoring arrangement. A car shared between three people.

Write it as one page with the five answers, plus two terms from the chapter:

1. Counterparty — a name.
2. Principal — the sum and the date it moves.
3. Term — when it ends.
4. Price — the rate, stated as an annual percentage where money is early or late.
5. Trigger — the fact that turns an obligation on, who observes it, by when.
6. The shortfall clause — what happens if one side does not deliver. Capped, stated, not left to goodwill.
7. The review date — when both of you read it again.

Then do the part that makes it real: give it to the other person and ask them to change one thing. A page nobody has amended is a page nobody has read.

Exercise 3.3 — The window, on something you are buying (45 minutes)

Choose a purchase where you have the option to pay early, in advance, or in instalments. Compute your own opportunity cost of cash — honestly; for most students it is the interest on a debt you hold, not a deposit rate, and it is higher than you think. Then compute the range of discounts inside which paying early beats keeping the money.

Write the two numbers on an index card. Carry it. The next time somebody offers you a discount for paying up front, you will know within four seconds whether to take it, and that small competence compounds for the rest of your life.

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PART FOUR — DESTINY AND DELIGHT

Days 76–90: make it hold, and enjoy it

Exercise 4.1 — The three rots (30 minutes)

The chapter names three ways an instrument dies: the discount becomes the price, the paper becomes a habit nobody tests, and one counterparty ends up carrying too much. Translate each into your own arrangement and write the countermeasure next to it. One line each.

Exercise 4.2 — The irreversible signature (this week)

Sign the page from Exercise 3.2, with the other person, on paper, dated. Not an exchange of messages — a signature.

You will notice it feels disproportionate for the size of the thing, and the noticing is the exercise. A signature converts an intention into an obligation, and the discomfort you feel is the mechanism working. That is the same discomfort a CFO feels at three hundred times the sum, and you are learning to tolerate it cheaply.

Exercise 4.3 — Delight, in the drafting (ongoing)

Make the page itself good. One sheet, generous margins, plain sentences, no clause that either of you has to read twice. Set it in something you like reading. Keep a copy.

A contract that is a pleasure to read gets read, and a contract that gets read gets honoured. This is not decoration — it is the adoption mechanism, in the smallest possible instance.

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THE TERM PROJECT

One instrument, carried the whole way

Choose a real arrangement you have genuine standing in — a society, a shared household, a freelance engagement, a group project with a budget — and take it from understanding to signed instrument.

Deliverables.

1. The counterparty memo (500 words). Who, why them, what they get, and their cost of capital as best you can estimate it. Include the two candidates you did not choose and why.
2. The arithmetic (400 words plus workings). The rate, annualised. The window, both ends. The break-even size if documentation costs anything at all — your own time at a stated hourly rate counts.
3. The one page. Five answers, shortfall clause, review date. Signed by both parties, dated.
4. The honest negative (300 words). The threshold below which this instrument is not worth writing, with the number, and the condition it needs that is usually absent.
5. The template (1 page). The same document with the specifics stripped out, ready for the second use. Give it to one other person in your seminar.
6. The reflection (500 words). What you expected the other party to say, what they actually said, and what the gap tells you about your model of them.

How it is assessed. Not on whether the arrangement succeeded. On whether the five answers are genuinely answered, whether the arithmetic is reproducible by a reader, and whether the shortfall clause would survive the failure it describes.

A signed page for a small sum, honestly drafted, is a first-class piece of work. An elegant unsigned proposal is not.

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SELF-ASSESSMENT

Score yourself honestly. This is for you.

The two that matter most are the second and the fifth. Annualising is a mechanical skill you will use weekly for fifty years. Writing the protection before the price is a habit of sequence, and sequence is the hardest thing to learn late.

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CARRYING IT FORWARD

What you have at the end of this, if you do it properly:

• One signed instrument you wrote, which you can describe in ninety seconds.
• A template, which is the part that has value the second time.
• The ability to convert any price into a rate in your head.
• The knowledge that a negotiation has computable boundaries, and the habit of arriving with both of them.

That last one changes what a room can decide. Most people negotiate without knowing where the possible ends; the person who brings the window is not cleverer, only prepared, and preparation is available to you today, with no authority and no capital whatsoever.

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APPRECIATIVE QUESTIONS FOR YOUR SEMINAR

1. When has one of us been trusted with money before the work was done — and what made the other person willing?
2. Which agreements in student life work well without being written down, and what exactly is holding them?
3. What is the smallest instrument any of us could write this month that somebody would actually sign?
4. If everyone here left with one signed page they had drafted themselves, what would that be worth to this group in three years?