Derivative Investments

Question 1

Put-Call Parity

Synthetic Put

Answer 1

P = C + X / (1 + r_rf)^{<span>n</span>} - S

or

Put = Call + PV_X - Stock

Long Call, Long Bond, Short Stock

Question 2

Forward Rate Agreement

FRA

Answer 2

(r_exp - r_cont)(n/360)

—————————— * Notional

 1 + r<sub>exp</sub>(n/360)

Question 3

FRA Quick Math

Answer 3

{[(Single Bond - First Bond) / Periods Between] * Total Periods} + First Bond

Question 4

Lower Bound for a

European Call

Answer 4

Ø or P - PV_X

Whichever is greater