Suppose the premium on a three year,four percent floor is equal to the premium on a three year,eight percent cap.This combination is referred to as
A) Zero-cost warrant
B) Zero-premium strap
C) Zero-cost collar
D) Zero-premium swap
E) Zero-cost FRA

Question

Quizplus · Accepted Answer

A zero-cost collar involves buying a cap and selling a floor with the same strike price and expiration date at zero net cost. Therefore, since the premium on the three year, 4% floor is equal to the premium on the three year, 8% cap, this represents a zero-cost collar combination.

Suppose the Premium on a Three Year,four Percent Floor Is