A Structured Equity Product
Megabank’s equity derivatives structurers in London hear about a structured product that another bank is selling to its retail clients in London. Megabank has decided to sell the same product to its retail investors. It is a structured bond, which are very popular with retail investors. The product broadly works in the following way: an investor buys a structured bond for £10,000 today and is guaranteed by Megabank to get at least £10,000 back in five years’ time. In addition to this, in five years, if the FTSE 100 is above 5,000 the investor will receive a return over and above his £10,000 investment (Figure 4.8).
FIGURE 4.8 Structured equity cashflows.
The description “in five years, if the FTSE 100 is above 5,000 ...
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