CFA Level 1 Question of the Week – Derivatives

The correct answer is A.

A synthetic
long position in a riskless bond is
created by combining a long position in a put, a long position in the
underlying, and a short position in a call. 

Put-call parity:
p0 + S0 = c0 + X/(1 + r)^T
X/(1+r)^T
= p0 + S0 – c0

mincemeat23 said:

Just to confirm, wouldn’t combining the three positions make a “super-concentrated” long position on the bond? Not that it breaks the question, just wanted to clarify.

A super-concentrated long position in the underlying (not the bond) would be created by going long the underlying, long a call, and short a put. Not sure if that answers your question, but if you need more clarification, we’re always here to help!