   Chapter 18.A, Problem 1Q Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

Solutions

Chapter
Section Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

In words, what is put-call parity?

Summary Introduction

To discuss: The meaning of put-call parity.

Introduction:

Option is a contract to purchase a financial asset from one party and sell it to another party on an agreed price for a future date. There are two types of options, which are as follows:

• An option that buys an asset called call option
• An option that sells an asset called put option
Explanation

The meaning of put-call parity is as follows:

The put-call parity is defined as the relationship between the put price, call price, stock price, and the bond. The mathematical equation of put-call parity is given below:

Put option+Stock=

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