AIB Euro Fund 14

Has anyone looked into the detail of the latest AIB Eurofund tracker. It offers capiltal protection plus a guaranteed 5% p.a. return. In addition it will give a portion of the retun in the Dow Jones Eurostoxx index. To provide the 5% p.a. AIB need to guarantee a return of 6.86% per annum (because of charges etc.). How can they guarantee that level of return? Is this not lunacy on their part? Am I missing something?

Simple - they are paying you approx 3% of a funding premium on the zero coupon. - you can see that from the brochure where it indicates that 18400 is used to give a return of 22522 = Future Value at a discount rate of approx 5.76%. With 5 year swaps trading at about 2.76%, that equates to a 3% term funding premium being paid by AIB to Ark Life for the term funds. The reality is that it is far cheaper than trying to borrow interbank term funds, where they would probably have to pay north of 5% premium if they could get a price at all.

Final point - AIB are guaranteeing the capital return, and would you lock your money up for 5 years with a Junk bond status bank?