RSM230H1 Chapter Notes - Chapter 24: Hedge Fund, Mutual Fund, Credit Risk
Document Summary
Guarantees, index-linked gic"s & principal protected notes ( ppn"s) Invest without the risk of losing money: worst-case scenario is return of principal after 5 or more years. If markets perform well, performance is capped < market return. Use zero coupon bonds & derivatives to alter the performance profile of the underlying asset. Opportunity cost: if markets perform badly, funds are locked in for the remaining term to maturity with repayment of principal (no inflation or interest adjustment) Principal protection is underwritten by issuing bank &/or insurance co. Guarantee is only as strong as the financial company providing it (aig). Issuer agrees to repay investors the amount originally invested plus interest. The interest rate is tied to the performance of some underlying asset. Ppns guarantee only the return of the principal, and although issued by chartered banks are not protected under the cdic. Ppns are not issued under prospectus and are not considered securities.
