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Suppose You Use Put-Call Parity to Compute a European Call

Question 3

Multiple Choice

Suppose you use put-call parity to compute a European call price from the European put price,the stock price,and the risk-free rate.You find the market price of the call to be less than the price given by put-call parity.Ignoring transaction costs,what trades should you do?


A) buy the call and the risk-free bonds and sell the put and the stock
B) buy the stock and the risk-free bonds and sell the put and the call
C) buy the put and the stock and sell the risk-free bonds and the call
D) buy the put and the call and sell the risk-free bonds and the stock
E) none of the above

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