The value of a stock is based on the
A)present values of the dividend stream and final price.As a result,the value of a stock rises when interest rates rise.
B)present values of the dividend stream and final price.As a result,the value of a stock falls when interest rates rise.
C)future values of the dividend stream and final price.As a result,the value of a stock rises when interest rates rises.
D)future values of the dividend stream and final price.As a result,the value of a stock falls when interest rates rise.

Question

Quizplus · Accepted Answer

The value of a stock is based on the present value of the expected future dividends and the expected future price. As interest rates rise, the present value of future cash flows is reduced, resulting in a decrease in stock value. Therefore, the value of a stock falls when interest rates rise, making option B the best choice.

The Value of a Stock Is Based on the