# Sample exam 2 Interest rate option

in the question, it states using a collar. the call is 100 000 and the put is 130 000. why the heck is the answer adding the cost??? you are suppose to subtract the cost. it’s a net cost of like 31050

well… the collar is this. you buy the put and sell the call. the cost for the put is \$130 000 and the cost for the call is \$100 000. so your net cost is 30 000 plus interest. \$31050 which should be subtracted from the denominated

i am almost certain the answer 8.05% is incorrect.

i don’t even remember 8.05 being an option.

Can you post the whole question ?

I don’t have the question anymore. just have the answer sheet. but I am 100% certain now the answer provided is incorrect! I went through the CFAI and schweser books again. They added instead of subtracted on the denominator. and since the net of the call and put cost money instead of made money. So the answer to question 21 on Version 2 Sample exam is incorrect.

8.05% is the answer given for this question.

it’s put premium at 130,000 and call premium at 100,000… rf® at 5% so to find the fv of the loan premiums, yes, your net is 30,000+. Put is add, call is subtract. so fv premium at 31500… not sure anymore. the more i read this forum, the more confused i get.

the put you have to pay as you are long the put -\$130 000 and short the call, and recieve +\$100 000, so the collar gives you a net of -\$30 000. with the interest it’s going to be \$31 050. the answer should be [(60 000 000 + 2 400 000) / (60 000 000 - 31 500)] ^ 360/180 - 1 which will be around 8.273% or so. anyways, i now worked out everything and understand more than ever. The answer provided is wrong and I am moving on.

^ that should be compounded using 365 day notation.

mp2438 Wrote: ------------------------------------------------------- > ^ that should be compounded using 365 day > notation. you can use either or. CFA uses 360 and Schweser uses 365

I think 8.05% is correct. in Q, bank loan out \$\$ at floating rate, and worries interest rate down. So bank buy put and sell call, the collar net cost is \$31500 at the beginning of loan. It seems like bank loan out 60M+collar cost \$31500. when loan matures, bank was paid back principal 60M+interest. when company borrows \$\$ , worries interest up. their collar cost reduce the actual \$\$ they received through loan. so it is loan 60M-collar cost \$31500. in notes4, Page193-195, there is a sample shows the bank’s case step by step.

this is getting more bizzare as 8.05% wasn’t even an option in the question. but you do have a point, if that’s the case, WOW, TRICKY QUESTION

whystudy Wrote: ------------------------------------------------------- > this is getting more bizzare as 8.05% wasn’t even > an option in the question. > > but you do have a point, if that’s the case, WOW, > TRICKY QUESTION 8.05% is choice A . I was correct in this Q.

did they change the question??.. i remember choice a was like 8.16%!!! cause that’s exactly (1.04)^2

did they change the question??.. i remember choice a was like 8.16%!!! cause that’s exactly (1.04)^2 and i eliminated choice A right away.

did they change the question??.. i remember choice a was like 8.16%!!! cause that’s exactly (1.04)^2 and i eliminated choice A right away.