14. A protective put strategy can be replicated by which one of the following? a

Question

14. A protective put strategy can be replicated by which one of the following? a. riskless investment and stock purchase b. stock purchase and call option c. call option and riskless investment d. riskless investment e. call option, stock purchase, and riskless investment 15. You can realize the same value as that derived from stock ownership if you: a. sell a put option and invest at the risk-free rate of return. b. buy a call option and write a put option on a stock and also lend out funds at the risk-free rate. c. sell a put and buy a call on a stock as well as invest at the risk-free rate of return. d. lend out funds at the risk-free rate of return and sell a put option on the stock. e. borrow funds at the risk-free rate of return and invest the proceeds in equivalent amounts of put and call options. 16. In the Black-Scholes option pricing formula, N(d) is the probability that a standardized, normally distributed random variable is: a. less than or equal to N(d2). b. less than one c. equal to one. d. equal to di. e. less than or equal to di.

Explanation / Answer

14)

Option C

P + S = C + X*EXP(-r*T)

left side = protective put

right side = call option + risk free investment

15)

Option B

S = C + X*EXP(-r*T) - P

left side = stock

right side = call option + risk free investment - sell put

16)

Option B

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