Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Massive Co sep/dec 15 Q2)
- This topic has 6 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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- August 18, 2016 at 6:18 pm #333996
How do find the unexpired basis over here?
and why do y divide by 4 according to marking scheme.
Is there a standard formula to calculate it?August 18, 2016 at 6:34 pm #333998(Collar Opions Same question)
I just wanted to know how do u decide which strike price to use for put(cap) and floor (call)
Marking scheme says like this?
Using a collar
Buy December call at 97·00 for 0·032 and sell December put at 96·50 for 0·123. Net premium received = 0·091
SInce its investing we have to sell put and buy call, however when u sell, u sell at higher price then buy at lower price this is wat my logic says?
Can u clarifyAugust 18, 2016 at 6:42 pm #333999How come it be a loss for the collar? can u explain pls thnks
Loss on exercise
(76 x €25 x 50) (95,000)August 19, 2016 at 7:38 am #334036From 1 Sep now) to 31 Dec (the end of the future) is 4 months.
The date of the transaction is 30 Nov, and so there is 1 month unexpired out of 4.I do spend a lot of time in my lectures on interest rate futures and options explaining this.
August 19, 2016 at 7:50 am #334037Because the are investing, they will buy a call option which will then fix the minimum interest rate and will sell a put option which will then fix a maximum interest rate.
If interest rates fall below the minimum rate we will exercise the call option and make a profit, if interest rates go above the maximum rate then the buyer of the put option will exercise so we make a loss.
In practice there are several ‘pairs’ of strike prices that could be chosen – each with different max and min’s and different net premiums. In this question there are only two strike prices available.
I suggest that you read my note on collars – it is only short and should make sense of it all 🙂
https://opentuition.com/articles/p4/interest-rate-collars/August 22, 2016 at 5:57 pm #334574I just have a small doubt, as per marking scheme oki?
If interest rates increase to 4·1%Buy call Sell put
Exercise price 97·00 96·50 (3.5%)
Futures price 95·74 95·74 4.26%
Exercise option? No YesSince its receipt our main is that interest rates should go down, so we fix at 3% but actuall is more than that so we dont exercise oki, I understood this
the buyer of put fix at 3.5 but actual becomes 4.26 so he doesnt have to exercise he can enjoy at 4.26 so he wil get more interest receipts ryt?
Am I wrong? plus since the actual is 4.26 we fix at 3.5 so we are loosing out so its a loss???August 23, 2016 at 6:22 am #334633The buyer of the put is worried about interest rates going up because he will be borrowing money, so if the actual rate is higher he will exercise and we will lose.
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