You can realize the same value as that derived from stock ownership if you:
A) sell a put option and invest at the risk-free rate of return.
B) buy a call option and write a put option on a stock and also borrow funds at the risk-free rate.
C) sell a put and buy a call on a stock as well as invest at the risk-free rate of return.
D) lend out funds at the risk-free rate of return and sell a put option on the stock.
E) borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options.

Question

Quizplus · Accepted Answer

By selling a put and buying a call option on a stock, the investor has created a synthetic long position in the stock. Additionally, investing at the risk-free rate of return will provide a riskless return. Therefore, the investor can realize the same value as that derived from stock ownership. Option A, D, and E do not create a synthetic long position in the stock which is necessary to realize the same value as that derived from stock ownership. Option B involves borrowing funds, which adds additional risk to the investment.

You Can Realize the Same Value as That Derived from Stock