while calculating the effective interest cost of a collar, why dont we consider the rate we will claim back?
i.e if we have made a cap at 8% and libor is 9.5% why do we took 9.5 in our effective rate calculation ?
2) we do we compare with LIBOR to select whether to exercise or not??
and for someone who has bought a floor from us we compare his exercise price with futures price :/