So, two types of EAR questions:
Borrow money and buy an interest rate call to cap borrowing costs
Lend money and buy an interest rate put to put a floor on lending rate recieved
Why, when calculating EAR, do you subtract the FV of the call from the net amount borrowed in the first example and add the FV of the put ot the amount lent in the second example.
Maybe I’m just tired, but can’t seem to get this logically…
Thanks in advance