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Dec 11 Alecto

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Dec 11 Alecto

  • This topic has 1 reply, 2 voices, and was last updated 3 months ago by John Moffat.
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  • March 26, 2022 at 9:14 pm #651965
    humai
    • Topics: 710
    • Replies: 233
    • ☆☆☆☆

    Sir here in case of collars, if interest rate decrease by 0.5%, put is not exercised and call is exercised. but why examiner has written underlying cost of borrowing, premium , loss on exercise under put option instead of call option?

    March 27, 2022 at 10:35 am #652018
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    It is summarising the net effect of the collar (the fact that it is typed in the same column for ‘buy put’ is just how the typing has come out.

    The $48,100 is the loss resulting from the fact that the person who bought the call option from us will exercise it and therefore we will have to pay out the $48,100.

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