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Pilot paper/interest rate collar query

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › Pilot paper/interest rate collar query

  • This topic has 7 replies, 3 voices, and was last updated 9 years ago by John Moffat.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • November 28, 2015 at 1:21 pm #285923
    shelbymill
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Hi john

    I’m in the middle of P4 pilot paper and q2 part b for the collar, I don’t understand why they have exercised the sell call part If it’s creating a loss ($48100) I worked out the same number but am i missing something obvious or is this an error? The buy put for the same part was not exercised..

    November 28, 2015 at 1:25 pm #285927
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    It is not the seller who has the choice of exercising – it is the buyer of the option. It creates a profit for them and so they will exercise.

    (The lectures and also the separate note that I have uploaded will help you with collars – you can find them linked from the main P4 page)

    November 28, 2015 at 1:30 pm #285934
    shelbymill
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Perfect, thanks so much 🙂

    November 28, 2015 at 2:30 pm #285945
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You are welcome 🙂

    November 30, 2015 at 8:24 am #286318
    dragon76
    Member
    • Topics: 50
    • Replies: 77
    • ☆☆

    When use Interest Collar, I confuse which exercise price should be chosen if i am a borrower, pls. advise?

    November 30, 2015 at 11:17 am #286381
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    For a collar you buy a put option at one exercise price and sell a call option at another exercise price.

    Depending on how many strike prices are available, then there are several collars that can be created and you need to be able to discuss the all.

    I do suggest that you watch the free lectures on interest rate options (collars are explained at the end of the lecture) and also read my separate note on collars. Both are linked from the main P4 page of the website.

    December 1, 2015 at 4:09 am #286600
    dragon76
    Member
    • Topics: 50
    • Replies: 77
    • ☆☆

    Much thanks John

    December 1, 2015 at 7:09 am #286627
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You are welcome 🙂

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