Which of the following statements does NOT accurately reflect the relationship between securities and synthetic forward contracts?
A) Forward = stock - zero coupon bond
B) Zero coupon bond = stock - forward
C) Prepaid forward = forward - zero coupon bond
D) Stock = forward + zero coupon bond

Question

Quizplus · Accepted Answer

A synthetic forward contract can be created by combining a stock and a zero coupon bond, where the stock is bought and the bond is sold (or vice versa depending on the position taken). The correct relationships are represented in options A, B, and D. Option C inaccurately describes the relationship because a prepaid forward contract is essentially buying the stock in advance, not a combination of a forward contract minus a zero coupon bond.

Which of the Following Statements Does NOT Accurately Reflect the Relationship