What is a basket/underlying benchmark?

With a Principal Protected Note the investor’s prinicipal investment is guaranteed by the note’s issuer and the investor’s rate of return will be linked to the performance of some other investment. The investment that is linked to the PPN and determines the variable rate of return is referred to as the basket/underlying benchmark. For example, the PPN might use a specific stock market index, commodity or group(basket) of common shares as its underlying benchmark. The PPN’s investor information will list the individual securities, commodities, index and or hedge funds and their respective weightings used as the PPN’s basket/underlying benchmark. For example, RBC Principal Protected Commodity-Linked Note, Series 22, describes the Underlying Commodities as follows;

“The Notes are linked to the prices of an equally weighted basket of 5 underlying commodities (the “Commodities Basket”); namely: gold, zinc, lead, copper, and nickel (the “Underlying Commodities” and each an “Underlying Commodity”)

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