Question #36
Reading: Reading 31 Valuation of Contingent Claims
PDF File: Reading 31 Valuation of Contingent Claims.pdf
Page: 16
Status: Unattempted
Correct Answer: B
Question
Combining a short position in a stock with a long position in a call option on the stock will produce a payoff pattern equivalent to a:
Answer Choices:
A. long position in a put option on the stock
B. short position in a put option on the stock
C. risk-free security
Explanation
The combined payoff pattern of a short position in a stock and a long call option on the
stock is the same as the payoff pattern of a long put option on the stock.