Suppose That a Portfolio Manager Has Purchased a Floating Rate

question 18

Multiple Choice

Suppose that a portfolio manager has purchased a floating rate bond.To create a zero-cost collar,the manager should trade the following interest rate derivatives that have equal values:

• A) sell a cap with a higher strike rate and buy a floor with a lower strike rate
• B) buy a cap with a higher strike rate and sell a floor with a lower strike rate
• C) sell a floor with a higher strike rate and buy a cap with a lower strike rate
• D) buy a floor with a higher strike rate and sell a cap with a lower strike rate
• E) None of these answers are correct.

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