Problem

Which one of the following statements is correct?a. Value of put + present value of exerci...

Which one of the following statements is correct?

a. Value of put + present value of exercise price = value of call + share price.


b. Value of put + share price = value of call + present value of exercise price.


c. Value of put — share price = present value of exercise price — value of call.


d. Value of put + value of call = share price — present value of exercise price.

The correct statement equates the value of two investment strategies. Plot the payoffs to each strategy as a function of the stock price. Show that the two strategies give identical payoffs.

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Solutions For Problems in Chapter 20