In the attached newspaper page advertising Citibank's "Stock Index Insured Account", the bank promises "Stock Market Returns.Zero Risk to Principal."

a.What is the cost to the investor for buying this product? For example, consider what the investor loses in comparison to a regular CD?Similarly, what does the investor lose in comparison to an investment in the S&P 500 Index Fund?

b.Explain why an investor might be interested in this product.Why would Citibank offer such a product?

c.What is the risk exposure to the bank from offering this product? How might the bank hedge this risk exposure?

TRANSFER OR ROLLOVER YOUR IRA OR KEOGH Because the return is based on TO CITIBANK'S NEW FDIC INSURED ACCOUNT. stock market movement over a full five years, there are severe principal If you want to make the most of 5&P 500 Index over the term. com- penalties for early withdrawal your retirement plan move you paring this average to the Index on IRA or Keogh to Citibank now. HERE'S HOW TO START: the day your account was opened, Why? Because Citibank's new Stock and doubling the percentage gain For more information Index Insured So in a rising market. you enjoy or to rollover or transfer your Account gives stock market growth. IRA or Keogh, stop into any you the potential EXCLUSIVELY Citibank branch today or call for stock market FOR IRAS But even in a declining market. AND KEOGHS your principal is safe. 1-800-321-CI, ext. 7102. growth, without rick to principal. TOTAL RETURN ON FIVE-YEAR DEPOSIT HELD UNTIL MATURITY. CITIBANK'S NEW STOCK INDEX INSURED ACCOUNT. With this unique account, your IRA or Keogh deposit actually cams two times the average percentage increase in the Standard & Poor's -500 Index over a five year term. Yet it's 100% safe. There's no risk of losing your principal. even if the market goes down. Your principal is FDIC insured The Stock Index Insured You can call any day of the HERE'S HOW IT WORKS. Account is only available at Citibank. week, even on weekends The Stock Index Insured Account is a five year deposit. So it's 1-800-321-CITI THE CITI NEVER SLEEPS' the perfect way to let your IRA or And unlike investments with a Keogh money take advantage of broker or in some mutual funds long-term market trends. The return there are no management fees or for this account is calculated by aver- sales charges And there's no nak to aging the month-end values of the prinopal. The minimum deposit is CITIBANKe only $10.000