hey can any one help me with kaplan exam kit question on collar strategy??? this has gone way over my head I would reall appreciate if any 1 can explain that simply 2 me …
the extract of the question
:Troder plc expects to have 400 mil available for s/t investment for 5 months commencing in 2 months time. the co. wishes to protect it from any fall of interest rate and also would like to benefit from any rise in interest. again it is concrned with the high premium. use of collar option is suggested.
LIFFE Sterling options (500,000)
strike price call put
95.25 .445 .085
95.5 .280 .170
95.75 .165 .305
libor is 5% Co can invest at LIBOR minus 25 basis points
req: company wishes to receive more than 6750000 in interest from the investment after paying the premium. Illustrate how the collar option would be used??
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