For European options, the value of a call plus the present value of the exercise price is equal to
A)the value of a put minus the value of a share.
B)the value of a share minus the value of a call.
C)the value of a put plus the value of a share.
D)the value of a share minus the value of a put.

Question

Quizplus · Accepted Answer

By definition, the value of a European call option is the present value of the expected payoff at expiration, which is the maximum of zero and the difference between the stock price and the exercise price. Therefore, the value of a call plus the present value of the exercise price is equal to the value of the stock (i.e. the current stock price). 
On the other hand, the value of a European put option is the present value of the expected payoff at expiration, which is the maximum of zero and the difference between the exercise price and the stock price. Therefore, the value of a put plus the present value of the exercise price is equal to the strike price. 
Combining these two, we get the value of a put plus the value of a call plus the present value of the exercise price is equal to the stock price plus the strike price, which is equivalent to the value of a put plus the value of a share. Therefore, the correct choice is C.

For European Options, the Value of a Call Plus the Present