Question

Simon invests $5,000 in a principal-protected note (PPN). The PPN return will be determined by calculating the effective average of the underlying common shares, and the maximum return attributed to any one share is 35%. What type of PPN has Simon purchased?

A. Index-linked PPN with a participation rate.
B. Zero-coupon bond plus option.
C. Stock basket-linked PPN.
D. Index-linked PPN with a performance cap.

Answer 1

Simon has invested in a Stock basket-linked PPN, which is tied to the performance of a group of stocks and has a cap on individual stock returns at 35%.

Step-by-step explanation:

Simon has purchased a Stock basket-linked PPN. This type of principal-protected note is linked to the performance of a basket of stocks, with the return determined by the effective average of the underlying shares. Furthermore, the limitation that the maximum return attributed to any one share is 35% indicates a performance cap on individual stock gains, which is a feature of stock basket-linked PPNs.