Explanation

The put-call parity formula for European options is:

C + PV(K) = P + S₀

Where:

• C = Price of European call option
• P = Price of European put option
• S₀ = Current price of the underlying asset
• PV(K) = Present value of the strike price (risk-free bond)

Rearranging the formula to solve for a long call position:

C = P + S₀ - PV(K)

This translates to:

• Long call (C) = Long put (P) + Long asset (S₀) + Short risk-free bond (-PV(K))

Breaking down the components:

1. Long put (P) - Buying a put option
2. Long asset (S₀) - Buying the underlying asset
3. Short risk-free bond (-PV(K)) - Borrowing money at the risk-free rate (selling a bond)

Therefore, a long call position is equivalent to a portfolio consisting of:

• Long put
• Long underlying asset
• Short risk-free bond (borrowing)

This corresponds to Option B.