Citibank: Stock Index Insured Account Harvard Case Solution & Analysis


Under the context of S&P 500, there are certain cash flows that are attached to it, which the investors are going to receive. Hence, if there is an increase in the value of S&P 500, then it may result in higher returns to the investor and even if the S&P has resulted in a decrease, then the investor is going to receive the amount that he had invested initially. It clearly shows that in most of the cases, the investors are in a safe zone and will be able to generate over the investments they have made in the stock market.

Moreover, the annual return to the investors on the S&P is approximately 10%. However,this percentage rather may not attract the investor and even though if an investor is going to make a purchase of all 500 stocks, then it may be quite difficult for him. Overall, S&P 500 can also create a wrong impression over the investor by showing a percentage of almost 10%. This is because the investor may be thinking that this rate of return is not going to change, how ever due to the presence of inflation, it may be approximately equal to 7% relative.

Despite this, the product that has been introduced by the Citibank is unique to the customers because the returns on the stock market, which it is offering to its consumers, exclude the stock market risk. The customers usually place their deposits in the tax deferred plan and it is normally of a five year period.Furthermore, the averaging technique that is adopted by the bank is attractive because it is quite responsive to the needs of the investors on an individual basis. Moreover, S&P is normally used in order to measure the performance of the market in order to predict the level of future cash flows. Overall,the better option between the two is S&P 500 and the reason is that it mainly includes the fortune 500 companies and the stocks are being traded on the stock market, which is why the returns that are generated may be higher than CDs.

Q#02:Certificate of deposit generally entitles the investor to receive interest on the investment which they have made in CDs. Moreover, CDs are the promissory notes that are issued by banks and this can only be withdrawn when the banks give permission. On the other hand, the cost to the banks that they are going to bear is in the form of interest, which they are going to pay to the investors on the promissory notes that they have purchased from the bank.Despite this, there is also a loss of return to the investor and he may lose the interest,which he is going to be paid if he holds the money for a specific time period that is mentioned by the bank.

On the other hand, if an investor is going to invest in the S&P 500, then he will have to bear the inflation cost because the returns that are generated over the stocks are related to the fluctuations of the share prices in the stock market. Hence, the investor may get disappointed due to the loss he will have to bear because of the unpredictability in market conditions.Citibank Stock Index Insured Account Case Solution

Furthermore, the opportunity that would have been lost by the investor is due to the presence of the inflation factor in the overall economy. However,Citibank claims that the investors will get protection from any sort of loss, regardless of what is happening in the outside market. Hence, according to them even the initial deposit that is made by the investor will be repaid to the investor. The investor may lose other opportunities by tying up their funds in the S&P 500 and they may have to complex rules and regulations.

Q#03: The investor may be interested in this product for a variety of reasons. Firstly, the investor is going to receive the double amount in case the difference is positive. The next reason is that it gives the customers a chance to get a growth by offering them with a lower level of risk..............

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