put call parity when asset has cashflows

CFA Level I
#1

we have originally c + x/(1+rfr)t = p + s

why do we replace s by so - PV (cash flows) ?

Shouldnt we deduct the PV (cashflows) from S to make it equal to the beginning value of so?

#2

1 more q. if cash flows are expected in future to increase in an asset

will call increase or put increase ?

#3

S is the value of the stock. If the Stock is going to provide you dividends (Cashflows) in the future - the PV of Cashflows is an inflow to you. So essentially the Stock value today would be S - PV(Cashflows) since the stock value is determined among other things by the CAshflows themselves. Cashflows increase -> S increases.

as regards the other question:

C = P+(S-PV(CF)) - X/(1+rfr)^t

CF Increases -> RHS decreases -> Call value decreases

P = C + X/(1+rfr)^t - (S-PV(CF))

CF Increases -> the PV(CF) is subtracted from S -> a smaller value is subtracted so P Increases.

#4

thaks so if cashinflows increase, call reduces smiley