600 Part V: Index Options and Futures 
Solving the following equation for $MID would give the desired answer: 
Cash Value = 13 = 10 + 11.5 x ($MID/166.l - 1) 
3 = 11.5 x $MID/ 166.1 - 11.5 
14.5 x 166.1 / 11.5 = $MID 
209.43 = $MID 
So, if $MID were at 209.43, the cash value would be 13 - the price the investor 
is currently paying for SIS. This is protection of 12.2% down from the current price 
of 238.54. That is, $MID could decline 12.2% at maturity, from the current price of 
238.54 to a price of 209.43, and the investor who bought SIS would break even 
because it would still have a cash value of 13. 
Of course, this discount could have been computed using the SIS prices of 13 
and 15.02 as well, but many investors prefer to view it in terms of the underlying 
index - especially if the underlying is a popular and often-cited index such as the S&P 
500 or Dow-Jones Industrials. 
From Figure 32-1, it is evident that the discount persisted throughout the 
entire life of the product, shrinking more or less linearly until expiration. 
SIS TRADING AT A DISCOUNT TO THE GUARANTEE PRICE 
In the previous example, the investor could have bought SIS at a discount to its cash 
value computation, but if the stock market had declined considerably, he would still 
have had exposure from his SIS purchase price of 13 down to the guarantee price of 
10. The discount would have mitigated his percentage loss when compared to the 
$MID index itself, but it would be a loss nevertheless. 
However, there are sometimes occasions when the structured product is trad­
ing at a discount not only to cash value, but also to the guarantee price. This situation 
occurred frequently in the early trading life of SIS. From Figure 32-1, you can see 
that in 1995 the cash value was near 11, but SIS was trading at a discount of more 
than 2 points. In other words, SIS was trading below its guarantee price, while the 
cash value was actually above the guarantee price. It is a "double bonus" for an 
investor when such a situation occurs. 
Example: In February 1995, the following prices existed: 
$MID: 177.59 
SIS: 8.75 
For a moment, set aside considerations of the cash value. If one were to buy SIS 
at 8. 75 and hold it for the 5.5 years remaining until maturity, he would make 1.25 
points on his 8.75 investment- a return of 14.3% for the 5.5-year holding period. As 
a compounded rate of interest, this is an annual compound return of 2.43%.