PLUS®, Return Optimization Securities, and Stock Market Upturn Notes
Value
are structured products with the same type of payoff. These products
expose investors to the
linked security's downside risk while offering levered but generally limited
upside
potential.
They do not make coupon payments or promise any interest. Some varieties also
have a
capped return.
The following example is based on a Morgan Stanley PLUS, assuming that the risk
free
rate is 5%, the implied
volatility of the underlying stock is 25%, the dividend yield of the underlying
stock is 1% and the credit
default swap ("CDS") spread of the issuer (Morgan Stanley) is 1%. The contract
has a
maturity of 1 year.
The PLUS has a leverage ratio of 2.5 and a cap rate
of 20%. We assume that the initial
investment is $100.
Buffered PLUS®, Partial Protection Return Optimization Securities,
Equity
Buffered Notes, and Leverage Equity Index-Linked Notes
expose investors to most of the linked security's downside risk while offering
levered but generally limited upside potential. These products do not
make coupon payments or promise any interest. Some varieties have a capped
return.
The following example is based on a Morgan Stanley Buffered PLUS, assuming that
the
risk free rate is 5%, the implied volatility is 25%, the dividend
yield of the underlying stock is 1%, and the credit default swap ("CDS") spread
of
the issuer is 1%. The product has a two-year maturity, a leverage
ratio of 2.5, a cap rate of 20% and a 15% loss buffer. We assume that the initial
investment is $100.
Principal Protected Notes Calculator
Principal Protected Notes ("PPN") are a general class of
structured products that 'guarantee' the investor's principal.
Principal protection is also a feature applied to several other types of
products,
such as Absolute Return Barrier Notes.
Principal protected notes provide a levered return if the linked security has a
positive return, while limiting potential
losses to zero. Some PPNs have a capped return.
The following PPN valuation example assumes the risk free rate is 5%, the
implied
volatility of the underlying stock
is 25%, the dividend yield of the underlying stock is 1%, and the credit default
swap ("CDS") spread of the issuer
is 1%. The note has a two-year maturity, a leverage ratio of 2.5, and a cap rate
of
20%. We assume that the initial
investment is $100.
