Suppose you buy a call and lend the present value of its exercise price. You could match the payoffs of this strategy by:
A) Buying the underlying stock and selling a call
B) Selling a put and lending the present value of the exercise price
C) Buying the underlying stock and buying a put
D) Buying the underlying stock and selling a put

Question

Quizplus · Accepted Answer

This strategy is equivalent to a protective put, where you buy the underlying stock and buy a put option. This combination ensures that you have the right to sell the stock at the exercise price, matching the payoff of buying a call and lending the present value of the exercise price.

Suppose You Buy a Call and Lend the Present Value