a. Your friend Kristen claims that forming a portfolio today of long call, short put, and short stock has a value at option expiration equal to −K. Does it?

b. If a dividend payment occurs before option expiration, investors lower today’s stock price to an “effective stock price.” Why does this adjustment reduce call values and increase put values?

c. Exchange-traded options on individual stocks have American-style exercise. Therefore, put-call parity does not hold exactly for these options. Using option chain data from finance.yahoo.com or from the online version of The Wall Street Journal (www.wsj.com), compare the differences between selected call and put option prices with the differences between stock prices and discounted strike prices. You can find a short-term, riskless T-bill rate at www.reuters.com. How closely does put-call parity appear to hold for these equity options with American-style exercise?