The bonus level which determines the bonus payment is set above the current price of the underlying at the issue of the certificate. The barrier is set below the initial value. If the specific certificate comes with a cap as well, it is set at or above the bonus level.
The redemption at the end of maturity hinges on the development of the underlying. The following two cases can occur:
If the underlying does not fall to or below the barrier, the investor receives at least the bonus level payment. If the price of the underlying is higher than the bonus level at the end of period date, s/he receives the higher payment out of the two. The cap, if any, determines the maximum payout.
If the underlying does fall to or below the barrier at least once during the term of the certificate, there will be no bonus payment. The investor gets the performance of the underlying paid out at the end of maturity (limited by the cap, if any). Depending on whether the price of the underlying is below or above the issue price, the investor suffers a loss or makes a profit.