Answer: exercise price and forward price discounted at the risk-free rate.

## Explanation Put-call-forward parity is a relationship that connects the prices of European put and call options with the same strike price and expiration date to the forward price of the underlying asset. The formula is: **C - P = (F - X) / (1 + r)^T** Where: - C = Call option price - P = Put option price - F = Forward price - X = Exercise (strike) price - r = Risk-free rate - T = Time to expiration Rearranging this formula: **P - C = (X - F) / (1 + r)^T** This shows that the difference between the put price and call price (P - C) equals the difference between the exercise price and forward price, discounted at the risk-free rate. Let's analyze each option: **Option A**: "forward price and spot price discounted at the risk-free rate" - This is incorrect. The put-call-forward parity formula doesn't involve the spot price directly in this relationship. **Option B**: "spot price and exercise price discounted at the risk-free rate" - This is incorrect. This describes put-call parity for spot assets, not put-call-forward parity. **Option C**: "exercise price and forward price discounted at the risk-free rate" - This is CORRECT. According to put-call-forward parity: P - C = (X - F) / (1 + r)^T, which is exactly the difference between exercise price and forward price discounted at the risk-free rate. **Key Insight**: Put-call-forward parity is the forward market equivalent of put-call parity. While put-call parity relates options to the spot price, put-call-forward parity relates options to the forward price, which is more relevant for forward contracts and futures.

Author: LeetQuiz .