Suppose you buy a call and lend the present value of its exercise price. You could match the payoffs of this strategy by
A)buying the underlying stock and selling a call.
B)selling a put and lending the present value of the exercise price.
C)buying the underlying stock and buying a put.
D)buying the underlying stock and selling a put.

Question

Quizplus · Accepted Answer

This strategy is equivalent to a protective put strategy, where you buy the underlying stock and buy a put option. This combination ensures that you have the right to sell the stock at the exercise price, similar to the payoff from buying a call and lending the present value of the exercise price.

Suppose You Buy a Call and Lend the Present Value