Put-call parity suggests that the sum of the
A) prices of a stock and call equal zero
B) prices of a put and a call equal zero
C) sum of the prices of a stock, a call, a put, and a bond equal zero
D) sum of the prices of a stock and a put be equal to the prices of a call and a discounted bond

Question

Quizplus · Accepted Answer

Put-call parity formula states that the sum of the prices of a stock and a put should be equal to the prices of a call and a discounted bond. This principle is based on the premise that an investor can create a synthetic long call by purchasing a stock and a put at the same strike price and expiration date. Therefore, the put-call parity formula must hold in an efficient market where arbitrage opportunities are not available.

Put-Call Parity Suggests That the Sum of the