If the discount factor associated with the value of a bank's stock rises,the bank's stock price should rise,other factors held constant.

Question

Quizplus · Accepted Answer

A higher discount factor implies a lower discount rate, which increases the present value of future cash flows, thus potentially increasing the stock price. However, the statement is reversed; if the discount factor rises (meaning the discount rate decreases), it should indeed increase the stock price, not the other way around. The explanation provided applies to the general relationship between discount factors, discount rates, and stock prices, correcting the misunderstanding in the question's premise.

If the Discount Factor Associated with the Value of a Bank's