Guaranteed Note. You Are a Young Banker Offering a Client to Issue

Essay

Guaranteed note.
You are a young banker offering a client to issue a guaranteed note. The yield curve is flat at 9% for each maturity. Options on the stock index are offered by banks. A at-the-money call with a two-year maturity trades at 12% of the index value, whereas a three-year call is worth 15% of the index.
You wonder about the characteristics of the bond. If you offer a high coupon, the indexation will be low. Therefore, you decide to compute the indexation levels in accordance to the current market conditions for maturities of two and three years and coupon levels of 0%, 2%, and 5%.