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PLUS^{®}^{[1] }, Return Optimization
Securities, and Stock Market Upturn Notes are
structured products^{ [3]
[4] [5]} with the same type of payoff. These products
expose investors to the linked security's downside risk while offering levered
but generally limited upside potential. They do not make
coupon payments or promise any interest. Some varieties
also have a capped return.The following example is based on a Morgan Stanley PLUS, assuming that the risk free rate is 5%, the implied volatility of the underlying stock is 25%, the dividend yield of the underlying stock is 1% and the credit default swap ("CDS") spread of the issuer (Morgan Stanley) is 1%. The contract has a maturity of 1 year. The PLUS has a leverage ratio of 2.5 and a cap rate of 20%. We assume that the initial investment is $100. |

## Calculation Table |
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Risk Free Rate: | Implied Volatility: | |||||||

Dividend Yield: | CDS Spread: | |||||||

Contract Length: | Leverage: | |||||||

Cap: | ||||||||

Product Value: | ||||||||

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Buffered PLUS^{®}^{[1]}
, Partial Protection Return Optimization
Securities, Equity Buffered Notes, and
Leverage Equity Index-Linked Notes expose
investors to most of the linked security's downside risk while offering levered but
generally limited upside potential. These products do not
make coupon payments or promise any interest. Some varieties have a capped
return.The following example is based on a Morgan Stanley Buffered PLUS, assuming that the risk free rate is 5%, the implied volatility is 25%, the dividend yield of the underlying stock is 1%, and the credit default swap ("CDS") spread of the issuer is 1%. The product has a two-year maturity, a leverage ratio of 2.5, a cap rate of 20% and a 15% loss buffer. We assume that the initial investment is $100. |

## Calculation Table |
||||||||

Risk Free Rate: | Implied Volatility: | |||||||

Dividend Yield: | CDS Spread: | |||||||

Contract Length: | Buffer: | |||||||

Cap: | Leverage: | |||||||

Product Value: | ||||||||

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Principal Protected Notes ("PPN")^{[1]}
are a general class of structured products that 'guarantee' the investor's
principal. Principal protection is also a feature applied to several other types of products, such as
Absolute Return
Barrier Notes^{[2]}. Principal protected notes provide
a levered return if the linked security has a positive return, while limiting
potential losses to zero. Some PPNs have a capped return.The following PPN valuation example assumes the risk free rate is 5%, the implied volatility of the underlying stock is 25%, the dividend yield of the underlying stock is 1%, and the credit default swap ("CDS") spread of the issuer is 1%. The note has a two-year maturity, a leverage ratio of 2.5, and a cap rate of 20%. We assume that the initial investment is $100. |

## Calculation Table |
||||||||

Risk Free Rate: | Implied Volatility: | |||||||

Dividend Yield: | CDS Spread: | |||||||

Contract Length: | Leverage: | |||||||

Cap: | ||||||||

Product Value: | ||||||||

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- "On the valuations of structured products," (2010), SLCG working paper.
- "The anotomy of principal protected absolute return barrier notes," (2010), SLCG working paper.
- R. Baule, O. Entrop, and M. Wilkens, "Credit risk and bank margins in structured financial products: Evidence from the german secondary market for discount certificates," Journal of Futures Markets 28(4), 376-397, (2008).
- D. Bergstresser, "The retail market for structured notes: Issurance patterns and performance,1995-2008," (2008), Harvard Business School working paper
- B. Henderson and N. Pearson, "The dark side of financial innovation," (2009), EFA 2009 Bergen Meetings Paper.