# CFAI Mock 2

A Synthetic European call option on the euro with a strike price of 0.6400 pound/euro by using: long position in a put option with the same strike price as call option a position in a 90-day forward contract on the euro (Imp… F(O,T) > X, given) a position in a zero coupon bond. I selected, short the forward & long the bond. Is it correct. Kindly advice. Thanks Anish.

its Question # 50. Whats the answer if anybody knows.

thats what I said, I’m not sure what the correct answer is either. I don’t understand why the answer is long both. Can someone please explain what the correct answer is

deep, can we assume that the forward and the bond should be opposites. I am fine with bond being long!!

I didn’t get this either. c + (X-F)/(1+rf)=P

i read the pages in the CFAI book 5 times. and all they talk about is F(O,T) < > X .!! no IDEA

the bond in totality is X-Ft / (1+Rf) if X > FT, we are long the bond, if FT>X we are short the bond

and the futures/forward parity relation is Co + X-Ft / (1+Rf) = Po + Fo Fo - cost of entering the contract (which is zero for forward and future contracts) so Co = Po + Fo - (X-Ft) / (1+Rf) so since Ft> X we are long the forward contract and long the bond

The answer from CFA is incorrect. I got a 100% on the section and selected long the forward and short the bond. Just trust the equation…Positive equals Long, Negative equals short. Call + Bond = Put + Stock. Move the bond over by shorting it. Call = Put + Stock - Bond. It is as simple as that. At least I hope.

ruckmani Wrote: ------------------------------------------------------- > and the futures/forward parity relation is > > Co + X-Ft / (1+Rf) = Po + Fo > > Fo - cost of entering the contract (which is zero > for forward and future contracts) > > so Co = Po + Fo - (X-Ft) / (1+Rf) > > so since Ft> X we are long the forward contract > and long the bond You explanation does not agree to what is written on page 207 Vol 6. “Long a call is a long forward, long put, and a zero coupon bond with face value of F(O,T) - X.” The payoff of the bond makes a difference here. I am just skipping this crap. lot more to remember at this time. Thanks anyways Anish

tcasperite Wrote: ------------------------------------------------------- > The answer from CFA is incorrect. I got a 100% on > the section and selected long the forward and > short the bond. > > Just trust the equation…Positive equals Long, > Negative equals short. > > Call + Bond = Put + Stock. > > Move the bond over by shorting it. > > Call = Put + Stock - Bond. > > It is as simple as that. At least I hope. then that makes mine 6/6 also =)

What did your score come out as? 100?

Anish, look at the equation Co = Po + Fo - (X-Ft) / (1+Rf) this is equal to > so Co = Po + Fo + (Ft-X) / (1+Rf) this is long the put, long the forward and long the bond

Affirmative. Long both. Makes sense too, I don’t quite get the confusion here.

tcasperite Wrote: ------------------------------------------------------- > The answer from CFA is incorrect. I got a 100% on > the section and selected long the forward and > short the bond. > > Just trust the equation…Positive equals Long, > Negative equals short. > > Call + Bond = Put + Stock. > > Move the bond over by shorting it. > > Call = Put + Stock - Bond. > > It is as simple as that. At least I hope. The explination was correct but what you said was right, I picked the same thing but I know I got it right as I was 83.33% in Derivatives and I absolutly know this was not it.

there were two derivatives vignettes… so what’s the final concensus?