Why would asset prices tend to move inversely with interest rates?
A)their present value decreases as interest rates increase.
B)their present value increases as interest rates increase.
C)their past value decreases as interest rates increase.
D)prices tend to move the same as interest rates.
E)none of the above.

Question

Quizplus · Accepted Answer

As interest rates increase, the cost of borrowing money becomes more expensive, and investors demand higher returns to compensate for the increased cost. This, in turn, decreases the present value of future cash flows, including dividends or interest payments, which reduces the value of assets such as stocks and bonds. Therefore, asset prices tend to move inversely with interest rates.

Why Would Asset Prices Tend to Move Inversely with Interest