Put-call parity asserts that if the markets are in equilibrium, a long position in a stock and a put produces the same return (or profit/loss) as a long position in a discounted bond and call with the same strike price as the put. You are given the following information:
Price of the stock $50 | $50.00 |
Interest rate 5% | 5% |
Price of a $50 bond discounted at the current interest rate $47. | $47.62 |
62 Price of a call to buy the stock at $50 $ 5.38 | $5.38 |
Price of a put to sell the stock at $50 $ 3.00 | $3.0 |
Use the following prices of the stock ($60, $50, and $40) to verify the above statement
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