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Hi John
Regarding the question on “COLLAR” I do not quite grasp what is meant by the following answer headed “NOTE FOR TUTORS” at the end of the answer.
Yes I have watched your lectures on Collars and I cannot see how this logic is explained.
Thank you.
I would not worry about it because I think the examiner got himself a little bit muddled because the borrowing was lasting for 36 months. Normally in questions (and I am sure it will be the case in the future) the period is much shorter.
Because the options have to be exercised by the end of December at the latest, and because the interest on the loan is floating, he is suggesting that they would have to keep creating new collars every three months.
Again, do not worry about it. You can never be expected to deal with that situation and he was expecting the question to be answered in the normal way despite the length of the borrowing.
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