In Put-Call Forward Parity, the spot price (S) is replaced by which expression?
Explanation
To equate Spot to Forward, we must discount the Forward price back to present value.
Other questions
According to the Put-Call Parity equation, which portfolio is equivalent to a Fiduciary Call?
What represents 'B' in the mnemonic 'Sip Pepsi = Be Cool' (S + P = B + C)?
Which of the following correctly describes a 'Protective Put'?
If you want to create a Synthetic Call option, which positions should you take?
The Put-Call Parity relationship applies strictly to which type of options?
Using the Put-Call Parity, what is the formula for a Synthetic Put?
In a synthetic position, what does a negative sign (-) typically indicate?
Calculate the price of a European Call option if: Stock = 100, Put = 5, PV of Strike (Bond) = 90.
Calculate the price of the underlying Stock if: Call = 12, Put = 7, PV of Strike = 50.
What constitutes a 'Fiduciary Call'?
If a firm is considered insolvent (Value of Assets < Debt), what is the payoff to shareholders?
Viewed as an option, a firm's equity is equivalent to:
What represents the 'Strike Price' in the analogy where Equity is a Call Option on the firm?
If risk-free rates (RFR) increase, what is the impact on the value of a Call Option based on the parity logic shown?
Calculate the value of a Bond (PV of Strike) in a parity arbitrage scenario if: Stock = 50, Put = 3, Call = 8.
A Synthetic Long Bond is created by:
If the market price of a Call is 10, but the synthetic call (S + P - B) is calculated at 12, what arbitrage action should be taken?
In the Put-Call Forward Parity equation, if the Forward Price is F, what is the formula for the Synthetic Call?
What is the payoff to debtholders if a firm is insolvent (Value of Assets < Debt)?
Calculate the PV of the Strike Price (Bond) if Strike = 105, RFR = 5 percent, and time to maturity = 1 year.
If Stock = 80, Strike = 80, RFR = 10 percent, Time = 1 year, and Call = 10, what is the Put price? (Assume X=80 is face value).
A portfolio of Long Stock + Long Put is used to limit downside risk. This is known as:
Identify the incorrect rearrangement of the Put-Call Parity formula (S + P = B + C).
If a Put option is priced at 5, Stock is 50, PV of Strike is 48, and Call is priced at 6, does an arbitrage opportunity exist?
In the arbitrage scenario where S+P = 55 and B+C = 54, what is the correct strategy?
A 'Synthetic Stock' position is constructed by:
If the Spot Price (S) is 100 and the Risk-Free Rate is 5 percent (T=1), what is the Forward Price (F) used in parity?
In the Merton corporate bond model, the value of the firm's debt is equal to:
If a Call is 10, Put is 10, and PV of Strike is 100, what must the Stock price be for parity to hold?
Which component in Put-Call Parity accounts for the time value of money related to the strike price?
The equation 'Stock + Put = Bond + Call' implies that:
Using Put-Call Forward Parity, if F = 105, X = 105, RFR = 5 percent (T=1), and C = 5, what is the value of P?
If Risk-Free Rate increases, what happens to the price of a Put option (holding other factors constant)?
Which position allows an investor to borrow money at the risk-free rate synthetically?
Calculate C if S=50, P=2, X=50, RFR=0 percent (T=1).
In the firm value analogy, if a company has Assets of 100 and Debt of 80, the 'option' is:
If implied volatility increases, what generally happens to both Call and Put prices?
To create a 'Synthetic Short Put', what positions are required?
Which condition allows for the substitution of S with PV(F) in parity equations?
If the equation S + P = B + C is violated, what is the immediate implication?
Calculate the Synthetic Call price if Forward Price = 105, Strike = 100, RFR = 5 percent (T=1), Put = 3.
What is the primary reason American options might not fit the 'Sip Pepsi = Be Cool' formula exactly?
For a solvent firm, the value of Debt (D) plus the value of Equity (E) equals:
When rearranging the formula to S = B + C - P, what does the term 'B' represent in an investment context?
Which strategy mimics owning the stock using derivatives?
If Spot = 100, Call = 5, Put = 5, and Strike = 100, what is the implied Risk-Free Rate?
The combination of a Long Call and a Short Put with the same strike and maturity creates a position similar to:
Put-Call Parity is effectively an application of:
If a firm is solvent, shareholders receive: