REX: Calculation of Payment or Delivery
at Maturity
For purposes of this example, assume a oneyear REX, with a principal
amount of $1,000, a 12.00% (per annum) coupon payable quarterly,
linked to the price performance of an underlying stock that is
traded on the New York Stock Exchange with a closing price of
$28.50 on the date the securities were priced.*
Given these assumptions, an investor in this hypothetical REX
will receive $30 on each quarterly interest payment date, totaling
$120 over the term of the securities, and the payment at maturity
will be calculated on the determination date as follows:
Step 1: Determine the closing price of the underlying
stock on the determination date, which is typically three trading
days prior to the maturity date.
Step 2: Determine the type of payment or delivery
at maturity.
Compare the closing price of the underlying stock on the determination
date to the closing price of the underlying stock on the date
the securities were priced. If the closing price of the underlying
stock on the determination date is equal to or greater than
the closing price of the underlying stock on the date the securities
were priced, the payment at maturity will be the return of the
original principal amount, or $1,000. If the closing price of
the underlying stock on the determination date is less than
the closing price of the underlying stock on the date the securities
were priced, investors will receive a number of shares of the
underlying stock equal to the stock redemption amount.
Step 3: Determine the stock redemption amount.
The stock redemption amount is equal to $1,000 (the original
principal amount of the REX) divided by the closing price of
the underlying stock on the date the securities were priced
(i.e., $1,000 / $28.50 = 35.088). Any fractional shares will
be paid in cash in an amount equal to the amount of fractional
shares times the closing price of the underlying stock on the
determination date.
Step 4: Determine the value of the payment or
delivery at maturity.
If the payment at maturity is the return of the original principal
amount, the value of such payment will equal $1,000. If the
delivery at maturity is the stock redemption amount, investors
will receive a number of shares of the underlying stock equal
to the stock redemption amount. The cash value of such shares
will not be determined until investors sell the shares in the
market. However, if an investor were to sell such shares on
the determination date, the cash value would be equal to the
stock redemption amount times the closing price of the underlying
stock on the determination date, which would be less than the
original investment of $1,000.
Investors do not participate in any price appreciation in the
underlying stock. The total return on the securities will be limited
to the aggregate fi xed coupon payments plus the cash value of
the payment at maturity. The maximum total return of this hypothetical
REX will be the original principal amount plus the aggregate fi
xed coupon payments or 12%. The minimum total return of the securities
will be the aggregate fi xed coupon payments or $120, which will
be the case if the closing price of the underlying stock is zero
on the determination date.
* These assumptions are for illustrative purposes only. The actual
notes offered may have different terms. You should review the
prospectus for the particular offering for a description of the
actual terms of any notes.
Hypothetical Payments or Deliveries at Maturity
In the accompanying table and graph, we have indicated several
hypothetical payments or deliveries at maturity for a hypothetical
REX, based on the assumptions set forth below. For comparative
purposes only, we have also indicated the total return on the
hypothetical underlying stock. However, investors in the REX do
not participate in any price appreciation in the underlying stock.
[ Table: Assumptions ]
[ Table: Step1,2,3,4,5 ]
[ Chart: REX Performance vs. Underlying Stock performance ]
