SIDC Module 7 Structured products question: rise in an index participation rate

SIDC Module 7Structured products

A capital-protected note pays 100% of capital at maturity plus 70% of any rise in an index (participation rate 70%). The index rises 20% over the term. What is the investor's total return?

A 6%
B 14%
C 20%
D 34%

Show the answer and explanation

Answer: B. 14%

Payout = capital + participation rate × index rise = 100% + 0.70 × 20% = 114%, a 14% return. 20% assumes full participation. 6% is the 30% of the gain the investor gives up. 34% adds the rise to the participation rate. Source: SIDC Module 7 Study Outline (Jul-Dec 2026) Topic 8 Structured Products; J. C. Hull, Options, Futures, and Other Derivatives (as at October 2026).

Common mistake

Ignoring the participation rate.

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A note with full capital protection at maturity pays 100% participation in an index's rise. The index falls 18% over the term. The investor holds to maturity and the issuer is solvent. What does the investor receive per RM100?A note pays 100% participation in an index's rise, capped at 15%, with full capital protection. The index rises 25%. What does the investor receive per RM100?A three-year capital-protected note uses a zero-coupon component yielding 3.5% a year (annual compounding). Ignoring fees, how much of each RM100 is available to buy the option component?

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