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While calculating the premium on interest rate collars, why do we not take the quarterly premium value?
i.e., if the premium is 0.21%, why do we take it as 0.21 and not (0.21/4) = 0.0525%?
It is because here we are calculating the effective maximum and minimum annual interest rates, and the premium is quoted as an annual rate (even though the actual $ interest paid and the actual $ premium paid will not be being paid for a full year).