Put-call parity explains why a change in interest rates by the Federal Reserve must affect stock and option prices.

Question

Quizplus · Accepted Answer

Put-call parity is based on the principle that the price of a call option plus the present value of the exercise price is equal to the price of a put option plus the stock price. If interest rates change, the present value of the exercise price will change, altering the parity equation and causing changes in option and stock prices to maintain parity. Therefore, a change in interest rates by the Federal Reserve will affect stock and option prices.

Put-Call Parity Explains Why a Change in Interest Rates by the Federal