needhelp1700

phrenchy Wrote:
-------------------------------------------------------
> For the put call parity question, you don't
> substract the PV of dividends, you're mixing 2
> different concepts - forward valuation and
> put-call parity relationship.
>
> What the CFA did that boggles me was to take the 6
> month risk free rate (0.5%) instead of the 12
> months rate (1%) for the calculation.


I'm so confused.

pg 178 and 179 of the Derivatives CFA book says specifically "the put-call parity relationshop must be modified to account for cash flows on the underlying asset. "

and put-call parity is call+X/(1+r)=p+[S-PV(CF,0,T)]