mortgage bonds have call features that are exercisable by the mortgage holders by refinancing. Are there conditions to the principal protection? . For the purposes of this alert, the term structured note with principal protection refers to any structured product that combines a bond with a derivative componentand that offers a full or partial return of principal at maturity. . Potential lack of liquidity is one of the disadvantages of structured notes with principal protection. A review of the major risks associated with bond investing follows. Furthermore, any downside protection offered might only kick in after a long lock-up periodor it might require you to hold the note until maturity. There is a big difference between 100 percent return of principal and 10 percent return, or something in between.
Structured notes with principal protection typically reflect the combination of a zero-coupon bond, which pays no interest until the bond matures, with an option or other derivative product whose payoff is linked to an underlying asset, index or benchmark. . What unique risks will I take on as a result of being exposed to the underlying asset, index or benchmark? If you cant understand how the product works, ask your investment professional for help. An unaccredited investor may purchase a note with a return linked to the return of an alternative investment, such as a hedge fund, to bypass the regulatory restrictions limiting direct investment in alternative investments to accredited investors. This is possible because regulatory authorities view a note as a debt investment or a deposit.
Call risk refers to the possibility that the issuer could call or r edeem. Zero- coupon bond holdings (resulting from the principal guarantee). What Are cibc Principal at Risk Notes?
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