Suppose you use put-call parity to compute a European call price from the European put price, the stock price, and the risk-free rate. You find the market price of the call to be less than the price given by put-call parity. Ignoring transaction costs, what trades should you do?
a. buy the call and the risk-free bonds and sell the put and the stock
b. buy the stock and the risk-free bonds and sell the put and the call
c. buy the put and the stock and sell the risk-free bonds and the call
d. buy the put and the call and sell the risk-free bonds and the stock
Answer: A
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