Suppose That the Domestic Risk Free Rate Is R and Dividend

question 18

Multiple Choice

Suppose that the domestic risk free rate is r and dividend yield on an index is q.How should the put-call parity formula for options on a non-dividend-paying stock be changed to provide a put-call parity formula for options on a stock index? Assume the options last T years.

• A) The stock price is replaced by the value of the index multiplied by exp(qT)
• B) The stock price is replaced by the value of the index multiplied by exp(rT)
• C) The stock price is replaced by the value of the index multiplied by exp(-qT)
• D) The stock price is replaced by the value of the index multiplied by exp(-rT)

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Definitions:

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Promissory Estoppel

A legal principle preventing a party from withdrawing a promise made to a second party if the second party has reasonably relied on that promise to their detriment.

Incarceration

The act of confining someone in a prison or similar facility.

Compensatory Damages

Compensatory Damages are awarded in civil lawsuits as a monetary compensation to the plaintiff for losses or injuries suffered due to the defendant's actions.