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John Moffat.
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humai
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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?
John Moffat
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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.
humai
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