What is an implicit cost of principal protected notes?
A.
Structuring costs and guarantee fees
B.
Performance participation caps
C.
Commissions
D.
Early redemption fees
The Answer Is:
B
This question includes an explanation.
Explanation:
Implicit costs of principal protected notes include performance participation caps, which limit the potential returns and are not always explicitly disclosed. The feedback from the document states:
"Implicit costs include fees borne by investors that may or may not be immediately visible and that may or may not be openly disclosed in the documents. Of the items listed, three are explicit costs, and only Performance Participation Caps are an implicit cost."
[Reference: Chapter 13 – Alternative Managed ProductsLearning Domain: Understanding Alternative Managed Products, , , , ]
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