Suppose a situation exists where you can purchase a share of stock for $25, purchase a put option on the stock for $3, and write a call option against the stock for $4. Also suppose that holding these three positions guarantees a payoff of $30 one year from today. If the risk free rate is 20%, does put-call parity hold? If not, then what new price of the put option would allow put-call parity to hold?

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The Answer of Suppose a situation exists where you can purchase a share of stock for $25, purchase a put option on the stock for $3, and write a call option against the stock for $4. Also suppose that holding these three positions guarantees a payoff of $30 one year from today. If the risk free rate is 20%, does put-call parity hold? If not, then what new price of the put option would allow put-call parity to hold?

Suppose a Situation Exists Where You Can Purchase a Share