Question: According to put - call parity, buying a zero - coupon bond with par value equals to the exercise price of the option plus buying

According to put-call parity, buying a zero-coupon bond with par value equals to the exercise price of the option plus
buying a call option will give us the same payoff as:
a. the current market value of the stock.
b. buying the stock plus selling the put option.
c. buying the put option plus selling the stock.
d. the par value of a U.S. Treasury bill.
e. buying the put option and buying the stock.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

Using put-call parity, it can be shown that a synthetic European put can be created by a portfolio that is a. short the stock, long the call, and long a zero coupon bond that pays the exercise price...

Q:

Questions 5 - 9 are about an equity - linked note. An equity - linked note is a debt instrument, usually a bond, that differs from a standard fixed - income security in that the final payout is based...

Q:

Questions 5 - 9 are about an equity - linked note. An equity - linked note is a debt instrument, usually a bond, that differs from a standard fixed - income security in that the final payout is based...

Q:

We showed that a strategy of buying a stock and buying a put is equivalent to a strategy of buying a call and buying a zero coupon bond. From this, the putcall parity relationship was established:...

Q:

TRUE OR FALSE Options give the right but not the obligation to exercise them? European options can be exercised only at maturity The option price is higher than its time value A put option provides...

Q:

Consider the payoff from investing in a risk-free, zero coupon bond (with maturity value of $50) and in a call option with a $50 exercise price. What will be the total payoff if the value of the...

Q:

You have a long stock, short European call, and short on bond whose face value is exercise price of call and put options. What is the value of your portfolio now? (The subscript E implies European...

Q:

Hello, i need help with this exercise. Characteristics of a growth stock always include O high current profitability strong expected future earnings growth high historical earnings growth O reducing...

Q:

6. You're interested in buying a zero coupon bond. You see two alternatives, Spartan Corporation is issuing a AAA rated 20 year bond. Lion, Inc. is rated A- and is offering a 20 year bond with...

Q:

YOUR BANK is thinking to issue a European "Straddle" option of strike price $925.000 and one-year maturity on a two-year zero coupon bond. What should be the issue price / offer price / premium on...

Q:

What effect does relative inflation have on interest rates and exchange rates?

Q:

Elly Corporation produces metal fasteners using six work cells, one for each of its product lines. It implemented JIT operations and costing methods two years ago. Overhead is assigned using a rate...

Q:

Suppose that Timmy lives in a neighborhood where graffiti is common. Prople's cars and the sides of hooses are often vandalized with graffiti. In respoese to the vandalism, the people in the...

Q:

Your work for a company that sells and installs landscaping plants. Your job is to k track of plant sales (related to landscaping), property locations where landscaping work has been accomplished (or...