CFA CFA Level 1 CFA Level 1 Question of the Week – Derivatives

CFA Level 1 Question of the Week – Derivatives

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    • Matt_AnalystPrep
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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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      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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      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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      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.

      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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