How CIBC Principal at Risk Notes Work
To understand how a Principal at Risk Note works, consider the example of a
note that features an enhanced return structure. With CIBC Enhanced Return
notes, the return at maturity is based on the positive performance of the
underlying assets, multiplied by a participation rate of more than 100%. These
notes offer leveraged positive returns with no increase in downside risk as
compared to investing in the assets directly.
The return can be linked to the performance of a portfolio of one or more
foreign and/or domestic equity indices, such as the S&P 500®, S&P/TSX 60, and
Dow Jones EURO STOXX 50®, without foreign currency risk. However, in general
other assets such as stocks, commodities, mutual funds, currencies and interest
rates can also be used. If the return on the underlying portfolio is negative
at maturity, the return on the note will be equal to the price return of the
portfolio. The most an investor can lose is 100% of the amount they originally
The example below shows the maturity amount (principal and interest) per note
that an investor could receive on a $100 principal investment for a Principal
at Risk Note with a participation rate of 130% under a number of different
To obtain similar returns by investing directly in the portfolio of indices, an
investor would need to provide a greater amount of principal up-front than is
needed to invest in a Principal at Risk Note with an enhanced return feature.
In addition to providing enhanced returns, Principal at Risk Notes can be
structured with other objectives in mind to take advantage of any market view:
Returns can be based on the price decline in the underlying basket of assets,
thereby enabling investors to earn a positive return in a declining (bear)
Returns can be based on the price of the underlying basket moving above or
below a specified level, thereby enabling investors to generate returns in a
The hypothetical returns used in the above examples are included for
illustration purposes only and are not estimates or forecasts intended to
predict future results. Actual returns will vary, depending on the performance
of the underlying assets.
Please refer to the Legal Notice link below for important information regarding
Principal at Risk Notes.
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