Put-call parity suggests that
A)the sum of the prices of a stock and a call equal zero
B)the sum of the prices of a put and a call equal zero
C)the 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 must equal the sum of the prices of a call and a discounted bond with the maturity date as the expiration date of the options

Question

Quizplus · Accepted Answer

Put-call parity is a principle that defines the relationship between the price of European put options and European call options of the same class, that is, with the same underlying asset, strike price, and expiration date. It states that the price of a call option implies a certain fair price for the corresponding put option having the same strike price and expiration date, and vice versa. The formula for put-call parity is C + PV(X) = P + S, where C is the price of the call, PV(X) is the present value of the strike price (X), P is the price of the put, and S is the price of the stock. This relationship shows that the sum of the prices of a stock and a put must equal the sum of the prices of a call and a discounted bond (which represents the present value of the strike price) with the maturity date as the expiration date of the options.

Put-Call Parity Suggests That