According to the Put-Call Parity Theorem, the Payoffs Associated with Ownership

question 22

Multiple Choice

According to the put-call parity theorem, the payoffs associated with ownership of a call option can be replicated by ________.

• A)shorting the underlying share, borrowing the present value of the exercise price and writing a put on the same underlying share and with the same exercise price
• B)buying the underlying share, borrowing the present value of the exercise price and buying a put on the same underlying share and with the same exercise price
• C)buying the underlying share, borrowing the present value of the exercise price and writing a put on the same underlying share and with the same exercise price
• D)shorting the underlying share, lending the present value of the exercise price and buying a put on the same underlying share and with the same exercise price

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Definitions:

Short Position

An investment strategy where an investor sells a security that he does not own at the time of sale, typically borrowing it, and hopes to buy it back later at a lower price.

Counterparties

The other organization or party involved in a financial transaction or agreement.

Swap

A derivative contract through which two parties exchange financial instruments, typically involving cash flows based on a notional principal amount.

Floating Rate Debt

A type of debt instrument with a variable interest rate that adjusts periodically based on a benchmark interest rate or index.