A deposit instrument offered by a bank guarantees that investors will receive a return during a six-month

Question:

A deposit instrument offered by a bank guarantees that investors will receive a return during a six-month period that is the greater of (a) zero and (b) 40% of the return provided by a market index. An investor is planning to put $100,000 in the instrument. Describe the payoff as an option on the index. Assuming that the risk-free rate of interest is 8% per annum, the yield on the index is 3% per annum, and the volatility of the index is 25% per annum, is the product a good deal for the investor? Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...