Answer-first summary for fast verification
Answer: long put plus long asset plus short risk-free bond.
## 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**.
Author: LeetQuiz .
Ultimate access to all questions.
According to put-call parity, for European options, a long call on an asset is equal to a:
A
long put plus long asset plus long risk-free bond.
B
long put plus long asset plus short risk-free bond.
C
short put plus short asset plus long risk-free bond.
No comments yet.