Which of the following incorrectly describes the put call parity?

It is strictly applied only on European call and put with the same strike and expiration date

It connects the put and call premiums with the underlying asset price and strike price

It can be shown by the law of one price and the no-arbitrage principle

It states that the call premium plus put premium equals to the underlying asset price plus the present value of the strike price

Question 2

Consider two portfolios (the put and call are European options on the same stock expiring in one year): 1) Investing in a risk-free zero coupon bond with face value K for one year earning effective annual rate r; 2) Long a put with strike K, long a share of the stock, short a call with strike K. In one year, if ST (Stock Price) >= K, the payoff of long a put is________, the payoff of long a stock is ________, the payoff of short a call is _______:

K - ST, ST, 0

0, ST, 0

0, ST, K - ST

ST - K, ST, 0

Question 3

Consider two portfolios (the put and call are European options on the same stock expiring in one year): 1) Investing in a risk-free zero coupon bond with face value K for one year earning effective annual rate r; 2) Long a put with strike K, long a share of the stock, short a call with strike K. In one year, if ST (Stock Price) < K, the payoff of long a put is________, the payoff of long a stock is _________, the payoff of short a call is _______:

K - ST, ST, 0

0, ST, 0

0, ST, K - ST

ST - K, ST, 0

Question 4

Consider two portfolios (the put and call are European options on the same stock expiring in one year): 1) Investing in a risk-free zero coupon bond with face value K for one year earning effective annual rate r; 2) Long a put with strike K, long a share of the stock, short a call with strike K. In one year, if ST (Stock Price) >= K, the payoffs of the above two portfolios are

K; K - ST

0; 0

K; K

K; ST - K

Question 5

Consider two portfolios (the put and call are European options on the same stock expiring in one year): 1) Investing in a risk-free zero coupon bond with face value K for one year earning effective annual rate r; 2) Long a put with strike K, long a share of the stock, short a call with strike K. The costs to set up these two portfolios are (S0 is the current stock price)

K; C(K,T) - P(K,T) + S0

K; C(K,T) + P(K,T) + S0

K/(1+r); C(K,T) + P(K,T) + S0

K/(1+r); - C(K,T) + P(K,T) + S0

Question 6

Assume the S&R index is currently $ 980, the price of 6-month 950-strike call is $ 85.42, the effective 6-month interest rate is 2%. What is the price of 6-month 950-strike put by the put call parity?

16.79

24.64

48.64

36.79

Question 7

Assume the S&R index is currently $ 980, the price of 6-month 950-strike call is $ 85.42, the effective 6-month interest rate is 2%. If the market price for the 6-month 950-strike put is $ 50, what would be your arbitrage portfolio: _______ a put, ______ the S&R index, _____ a call, long a risk-free zero-coupon bond with face value of $950.

short, short, long

long, short, long

long, short, short

short, short, long

Question 8

Assume the S&R index is currently $ 980, the price of 6-month 950-strike call is $ 85.42, the effective 6-month interest rate is 2%. If the market price for the 6-month 950-strike put is $ 50, and you have established your arbitrage portfolio with a put, the S&R index, a call, and a risk-free zero-coupon bond with face value of $950. In 6-month, suppose the S&R index is greater than $950, what actions would you take to realize arbitrage profits?

To exercise the call and receive the bond payment

To exercise the put and receive the bond payment

To exercise the call and the put

To fulfill the call obligation by selling the stock and exercise the put

Question 9

Assume the S&R index is currently $ 980, the price of 6-month 950-strike call is $ 85.42, the effective 6-month interest rate is 2%. If the market price for the 6-month 950-strike put is $ 50, and you have established your arbitrage portfolio with a put, the S&R index, a call, and a risk-free zero-coupon bond with face value of $950. In 6-month, suppose the S&R index is $900, what actions would you take to realize arbitrage profits?

To exercise the call and receive the bond payment

To exercise the put and receive the bond payment

To fulfill the put obligation by buying the index and receive the bond payment

To fulfill the call obligation by selling the index and exercise the put

Question 10

Which of the statement(s) are correct regarding the arbitrage and no-arbitrage principle? I. Arbitrage means to make profit without investing one's own money or taking any risk. II. Arbitrage opportunities are plenty and persisting a long time even in mature financial markets. III. Put-call parity can be established by no-arbitrage principle. IV. The no-arbitrage principle is used to price derivatives.

I, II and III

I, III and IV

II, III and IV

All of above