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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?
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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