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

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)^TX/(1+r)^T = p0 + S0 - c0

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.

CFA Level 1 Question Of The Week - Derivatives (3) - CFA Level 1

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This topic has 3 replies, 2 voices, and was last updated Jul-1910:22 am by Matt_AnalystPrep.

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- Matt_AnalystPrep
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  15 Jul 2019 at 9:22 pm
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  A synthetic long position in a riskless bond is created by combining:
  - A. a long position in a put, a long position in the underlying, and a short
    position in the call.
  - B. a long position in a call, a long position in the underlying, and a
    short position in the put.
  - C. a short position in a put, a short position in the underlying, and a
    long position in the call.
- mincemeat23
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  17 Jul 2019 at 4:37 am
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  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.
- Matt_AnalystPrep
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  19 Jul 2019 at 10:21 am
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  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
- Matt_AnalystPrep
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  19 Jul 2019 at 10:22 am
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  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!
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