Hypothetical Examples
The below examples are based on the following terms:
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Hypothetical Initial Index Value:
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3,700
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Hypothetical Coupon Barrier Level:
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2,590, which is 70% of the hypothetical initial index value
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Hypothetical Downside Threshold Level:
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2,220, which is 60% of the hypothetical initial index value
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Contingent Quarterly Coupon:
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8.65% per annum (corresponding to approximately $21.625 per quarter per security)1
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Stated Principal Amount:
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$1,000 per security
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1 The actual contingent quarterly coupon will be an amount determined by the calculation agent based on the number of days in the applicable payment period, calculated on a 30/360 day-count basis. The hypothetical contingent quarterly coupon of $21.625 is used in these examples for ease of analysis.
In Example 1, the index closing value of the underlying index is greater than or equal to the initial index value on one of the quarterly redemption determination dates (beginning on January 4, 2023). Because the index closing value is greater than or equal to the initial index value on such a date, the securities are automatically redeemed on the related early redemption date. In Examples 2, 3 and 4, the index closing value is less than the initial index value on each redemption determination date, and, consequently, the securities are not automatically redeemed prior to, and remain outstanding until, maturity.
Example 1—The securities are automatically redeemed following the quarterly redemption determination date in July 2023, as the index closing value is greater than or equal to the initial index value on such redemption determination date. The index closing value is at or above the coupon barrier level on only 1 of the 2 quarterly observation dates prior to (and excluding) the observation date immediately preceding the early redemption. Therefore, you would receive the contingent quarterly coupon with respect to that observation date, equal to $21.625, but not with respect to the other observation date. The underlying index, however, recovers, and the index closing value is greater than or equal to the initial index value on the redemption determination date in July 2023. Upon early redemption, investors receive the early redemption payment calculated as $1,000 + $21.625 = $1,021.625.
The total payment over the 9-month term of the securities is $21.625 + $1,021.625 = $1,043.25. Investors do not participate in any appreciation of the underlying index.
Example 2—The securities are not redeemed prior to maturity, as the index closing value is less than the initial index value on each quarterly redemption determination date. The index closing value is at or above the coupon barrier level on all 5 quarterly observation dates prior to (and excluding) the final observation date, and the final index value is also at or above the coupon barrier level and above the downside threshold level. Therefore, you would receive (i) the contingent quarterly coupons with respect to the 5 observation dates prior to (and excluding) the final observation date, totaling $21.625 × 5 = $108.125, and (ii) the payment at maturity calculated as $1,000 + $21.625 = $1,021.625.
The total payment over the 1.5-year term of the securities is $108.125 + $1,021.625 = $1,129.75.
This example illustrates the scenario where you receive a contingent quarterly coupon on every coupon payment date throughout the term of the securities and receive your principal back at maturity, resulting in an annual interest rate of 8.65% over the 1.5-year term of the securities. This example, therefore, represents the maximum amount payable over the 1.5-year term of the securities. To the extent that coupons are not paid on every coupon payment date, the effective rate of interest on the securities will be less than the rate of 8.65% per annum and could be zero.
Example 3—The securities are not redeemed prior to maturity, as the index closing value is less than the initial index value on each quarterly redemption determination date. The index closing value is at or above the coupon barrier level on 2 of the 5 quarterly observation dates prior to (and excluding) the final observation date. The final index value is 2,300, which is above the downside threshold level but below the coupon barrier level. In this scenario, you receive a payment at maturity equal to the stated principal amount, but do not receive the contingent quarterly coupon with respect to the final observation date. Therefore, you would receive (i) the contingent quarterly coupons with respect to those 2 determinations dates prior to (and excluding) the final observation date, totaling $21.625 × 2 = $43.25, but not for the other observation date, and (ii) the payment at maturity of $1,000.
The total payment over the 1.5-year term of the securities is $43.25 + $1,000 = $1,043.25.
Example 4—The securities are not redeemed prior to maturity, as the index closing value is less than the initial index value on each quarterly redemption determination date. The index closing value is below the coupon barrier level on all of the quarterly observation dates, including the final observation date, on which the final index value is 1,850, which is below the downside threshold level. Therefore, you would receive no contingent quarterly coupons, and the payment at maturity would be calculated as $1,000 × 1,850 / 3,700 = $500.
The total payment over the 1.5-year term of the securities is $0 + $500 = $500.
If the securities are not automatically redeemed prior to maturity and the final index value is less than the downside threshold level, you will lose a significant portion or all of your investment in the securities.