According to put-call-forward parity, if the put in a protective put with forward contract expires out of the money, the payoff is *most likely* equal to:

the face value of a risk-free bond. the market value of the underlying asset. zero.

Correct answer is B. I know put-call-forward parity equation is c + PV(x) = p + s.

But I still don’t know how to get the right answer. Can anyone help me on that ?

1 Like

If the put expires out of the money, then all you have of value is the underlying asset.

1 Like

To elaborate a bit more on S2000’s answer:

Remember that a **protective put** (right hand side of your put-call parity **: p+s** ) consists of buying:

**1) Underlying asset (Stock, TV, Car, Laptop etc.)**

**2) Put Option**

They payoff is always the sum of those two items. An example:

**1) Say the Asset is worth $100**

**2) Say the Put is worth $10**

Then your payoff is: $100+$10=$110

And in the case above, we we are told that the put is out of the money, so it is worth nothing, thus you have:

**1) Say the Asset is worth $100 again**

**2) the Put is worth zero**

Then your payoff is: $100+$0=$100

@biockout2003: Notice that you are referring to the formula for the **put-call parity** , the question is talking about the **put-call forward parity** which is slighty different but does not make much of a difference in this context since the payoffs are identical (but just as a reminder in case they ask for the formula).