An equity-linked certificate of deposit that has a cap on its rate of return (yield) per year (annual percentage rate– APR). In other words, the annual gains will be limited by the cap (also known as participation rate) regardless of the gains made by the underlying stock or index. For example, if the underlying index moves up 15% and the CD participation percentage is 70% and the cap is 8%, the CD return will still be capped at 8%, even if the participation in the underlying index’s return is 70% × 15% = 10.5%.
The cap may be applied to the return on an individual underlying asset or the the overall return of a number of assets (stocks).
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