Put–call parity asserts that if the markets are in equilibrium, a long position in a stock and a put produces the same return (or profit/loss) as a long position in a discounted bond and call with the same strike price as the put. You are given the following information:
Price of the stock ....... ............... $50
Interest rate ....... 5%
Price of a $50 bond discounted at the current interest rate ....... $47.62
Price of a call to buy the stock at $50 ........................ $5.38
Price of a put to sell the stock at $50 .......................... $3.00
Use the following prices of the stock ($60, $50, and $40) to verify the above statement.