A simple 5-year CD (certificate of deposit) with a return linked to the S&P 500 has the following structure. At maturity, the CD is guaranteed to repay the invested amount (say, $2,500), plus the simple appreciation in the S&P 500 over that time. Assume that currently the S&P index is at 2,500 and the risk-free return is 5% continuous compounding for any maturity. What is the price of the option part of this structured note?

Answer rating: 100% (QA)

Answer Continuous compounding for any maturity 319070 Base amount 250... View the full answer