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BMGT 444 Final Exam Lecture 2 2025 Questions and Answers What does a principal protected note do? - ....ANSWER ...-allows investor to take risky position without risking any principal. Other info about principal protected notes - ....ANSWER ...-• Financial institutions want to do this for you and take a cut • Financial institution will likely get a better deal than you could • They will face tighter bid-ask spreads • They will likely get higher interest rate than you would for lent money • On the other hand, Financial institution gets a piece of the action • Risk that bank won't be around to pay you off Protective put - ....ANSWER ...-An option plus the underlying stock what are the payoffs to owning a stock and a put? - ....ANSWER ...-• Owning stock has certain payoff ST • Owning put has payoff P = MAX(X - ST, 0) So the combined payoffs of owning a stock and put are: - ....ANSWER ...-• If ST > X ST + MAX(X - ST, 0) = ST …FOR STUDENTS ONLY…©️2025 ALL RIGHTS RESERVED… 1