Final answer:
An equity- or index-linked note (ELN or ILN) is a debt instrument where the final payment is tied to the performance of equities. Traditional bonds offer fixed or variable interest, and their present value fluctuates with market interest rates.
Step-by-step explanation:
The debt instrument described in the student's question is called an equity- or index-linked note (ELN or ILN). These are debt securities where the final payment at maturity is determined by the performance of a single stock, a basket of stocks, or an equity index. Unlike standard bonds, which typically offer fixed or variable interest payments over time, ELNs' payments are linked to the equity market.
Traditional bonds are essentially loan agreements where the borrower (issuer) promises to repay the face value at maturity date, and in the meantime, pays periodic interest, known as the coupon rate. The bond's price can fluctuate with changes in market interest rates; therefore, the present value is what a buyer is willing to pay for the bond at any given time. This price reflects the current desirability of the bond's fixed returns relative to the prevailing interest rates.