A company knows that it will need to borrow $500000 in six months’ time and is concerned that interest rates may rise before that date.

Posted: January 10th, 2022

A company knows that it will need to borrow $500000 in six months’ time and is concerned that interest rates may rise before that date. The company wishes to protect itself against a rise in interest rates and decides to use an options collar strategy. Explain how a collar strategy is structured and why the company might consider this type of strategy. (LO 20.5)