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The illustration you did on the interest rate collars shows the range of the interest collar between the floor and the cap, but the questions I have come across expect the answer to be in a monetary value. So how do we deal with such questions. Please advise.
Sometimes exam questions require a monetary value and sometime just require the %’s – it depends on the wording of the question.
If a monetary value is required then this is calculated in the same way as we always calculate the monetary effect of using options (when it is not a collar) as I explain in my lectures on interest rate options (which, given that interest rate options are option on interest rate futures needs being able to calculate the monetary effect of futures – again I explain this in full in my lectures.)
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