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Options Question

Hi everyone,

I’m having trouble understanding this question from the Schweser notes:

A synthetic European put option is created by:

A. buying the discount bond, buying the call option, and short-selling the stock

B. buying the call option, short-selling the discount bond, and short-selling the stock

C. short-selling the stock, buying the discount bond, and selling the call option

The book lists A as the correct answer, but even after reading the explanation I don’t understand why. What’s the simplest way to approach this type of question?

Thanks!

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Use put-call parity and rearrange the equation to isolate the put.

“Mmmmmm, something…” - H. Simpson

breadmaker wrote:
Use put-call parity and rearrange the equation to isolate the put.

You, there!  Put option!  In the corner right now!

Bad put option!

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

“Mmmmmm, something…” - H. Simpson

breadmaker wrote:

What a cutie!

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

Call Option, you’re a good boy, so you better stay in the line with the rest!! yes

“Mmmmmm, something…” - H. Simpson

Well, this has taken an unexpected turn. 

MatchesMalone wrote:

Well, this has taken an unexpected turn. 

But the pupperz r so kyooooooot!! And didn’t my answer help you out?????

“Mmmmmm, something…” - H. Simpson

MatchesMalone wrote:
Well, this has taken an unexpected turn.

Nobody expects the Sp … .

Oh, wait … wrong sketch.

As you were.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

“Mmmmmm, something…” - H. Simpson