Guaranteed Note. You Are a Young Banker Offering a Client to Issue

question 27

Essay

Guaranteed note.
You are a young banker offering a client to issue a guaranteed note. The yield curve is flat at 9% for each maturity. Options on the stock index are offered by banks. A at-the-money call with a two-year maturity trades at 12% of the index value, whereas a three-year call is worth 15% of the index.
You wonder about the characteristics of the bond. If you offer a high coupon, the indexation will be low. Therefore, you decide to compute the indexation levels in accordance to the current market conditions for maturities of two and three years and coupon levels of 0%, 2%, and 5%.

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Definitions:

Central Persuasion

A method of influencing that relies on direct, logical, and thought-provoking messages aiming at the central route of the cognitive process.

Peripheral Route Persuasion

A method of persuasion that influences individuals indirectly, by focusing on cues other than the direct message, such as the attractiveness or credibility of the source.

Central Route Persuasion

Central route persuasion is a method of persuasion that involves deeply processing the content of the message, leading to a lasting attitude change. It requires the audience's active and effortful engagement with the message.

Logical Arguments

Reasoning where premises are systematically connected to arrive at a justified conclusion.