Suppose That a Portfolio Manager Has Purchased a Floating Rate

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.