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

question 41

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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Definitions:

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