Challenging question - can anyone here solve it?

swapster · April 8th, 2004, 5:12 am

I wonder if anyone on this board can answer this:You are guaranteed a return of 2%on top of this you get a return of (X)*(amount by whichS&P 500 Return including dividends exceeds 2%)S&P 500 Vol is 20%Risk free rate is 5%Dividend yield is 1.5%What is a fair "X" to offer to clients........

daveangel · April 8th, 2004, 6:01 am

it is not particularly challenging .. I assume the note is sold at PAR (ie 100) ?

swapster · April 8th, 2004, 6:50 am

Yes sold at par

capitalistpig · April 8th, 2004, 6:57 am

this was cross posted to the technical forum... already replied there.