604 Part V: Index Options and Futures 
Or, thinking in the alternative, if the index triples, then the structured product 
(before adjustment factor) would be triple its initial price, or 30. Then 30 x 91.25% 
= 27.375. 
This example begins to demonstrate just how onerous the adjustment factor is. 
Notice that if the underlying doubles, you don't make "double" less 8.75% (the 
adjustment factor). No, you make "double" times the adjustment factor - 17.5% -
less than double. In the case of tripling, you make 3 x 8.75%, or 26.25%, less than 
triple (i.e., the structured product is worth 27.375, not 30, so the percentage increase 
was 173. 75%, not 200% - a difference of 26.25%, stated in terms of the initial invest­
ment). How can that be? It is a result of the adjustment factor being applied to the 
$SPX price before your profit (cash settlement value) is computed. 
THE BREAK-EVEN FINAL INDEX VALUE 
Before discussing the adjustment factor in more detail, one more point should be 
made: The owner of the structured product doesn't get back anything more than the 
base value unless the underlying has increased by at least a fixed amount at maturi­
ty. In others words, the underlying must appreciate to a price large enough that the 
final price times the adjustment factor is greater than the striking price of the struc­
tured product. We'll call this price the break-even final index value. 
An example will demonstrate this concept. 
Example: As in the preceding example, suppose that the striking price of the struc­
tured product is 1,100 and the adjustment factor is 8.75%. At what price would the 
final cash settlement value be something greater than the base value of 10? That 
price can be solved for with the following simple equation: 
Break-even final index value = Striking price/ (1- Adjustment factor) 
= 1,100 / (0.9125) = 1,205.48. 
Generally speaking, the underlying index must increase in value by a specific 
amount just to break even. In this case that amount is: 
1 / (1 - Adjustment factor) = 1 / 0.9175 = 1.0959 
In other words, the underlying index must increase in value by more than 9.5% 
by maturity just to overcome the weight of the adjustment factor. If the index increas­
es by a lesser amount, then the structured product holder will merely receive back 
his base value (10) at maturity. 
The previous examples all show that the adjustment factor is not a trivial thing. 
At first glance, one might not realize just how burdensome it is. After all, one might