alleryStart learning →A collar creates what for the buyer's effective interest rate?
AA single fixed rate
BA guaranteed discount
CA rising step ladder
DA band of fluctuation
Answer & Solution
Correct answer: D. A band of fluctuation
Between the floor and cap strikes the effective rate can still move, forming a band.
Keep practising Interest Rate Risk
Browse all Interest Rate Risk questions for CA Final, or explore more Strategicfinancialmanagement topics.
Related questions
A borrower buys an FRA at 7%. Its loan resets at 9%. Effective cost is about?Firm A pays 8% fixed or MIBOR+1%; B pays 10% fixed or MIBOR+2%. Quality spread differentiaA bank has Rs 500 cr rate-sensitive assets and Rs 350 cr liabilities. Rates rise 1%. IncomBond modified duration is 4.5. Yield rises 0.5 points. Approx price change?Eurodollar price rises 95.50 to 95.60. Long gain per contract (tick 0.005, $12.50)?A Eurodollar future trades at 96.40. What rate does it imply?A Eurodollar future implies a 3-month rate of 4.25%. Its price is?Same collar, 8% cap and 5% floor sold. Rate falls to 4%. Effective rate?