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#49 Troder – designing collars

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › #49 Troder – designing collars

  • This topic has 3 replies, 2 voices, and was last updated 6 years ago by John Moffat.
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  • June 2, 2016 at 8:43 pm #318945
    mansoor
    Member
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    this question wants u to design collar(s) given 3 different strike prices .. a lender’s collar.

    in the answer, he lists 3 different collars and i cant understand how he got them.

    is there any logic or a rational way to think how to eliminate possibilities? 3 options means there can be several combinations and lots of time wasted

    thanks

    June 3, 2016 at 7:59 am #319027
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51874
    • ☆☆☆☆☆

    Because they are depositing money, to create a collar they need to buy a call option and sell a put option.
    Also, the strike price for the call option will need to be higher than the strike price for the put option.
    There are only three combinations of strike prices that achieve that 🙂

    June 3, 2016 at 9:27 am #319061
    mansoor
    Member
    • Topics: 424
    • Replies: 542
    • ☆☆☆☆

    thanks..:).. that was simple once u explained it

    June 3, 2016 at 11:00 am #319096
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51874
    • ☆☆☆☆☆

    You are welcome 🙂

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