A lower interest rate will increase the present value of future income and thereby
A) decrease the market value of stocks.
B) increase the market value of stocks.
C) have no effect on the market value of stocks.
D) decrease the discounted market value of stocks.

Question

Quizplus · Accepted Answer

A lower interest rate means that future income streams are discounted at a lower rate, making them more valuable in today's dollars. This makes stocks more attractive to investors, causing an increase in demand for stocks and thus increasing their market value.

A Lower Interest Rate Will Increase the Present Value of Future