The Value of a Stock Is Based on the

question 7

Multiple Choice

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.

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Definitions:

Market Interest Rates

The prevailing rates at which borrowers can obtain loans and lenders can earn interest in the financial markets, influenced by monetary policy, market demand, and economic conditions.

Premium

An amount paid in addition to a standard rate or principal, often associated with insurance policies or bond prices over par value.

Discount

A reduction applied to the price of goods, services, or securities, either for promotional purposes or to reflect the present value of future cash flows.

Future Cash Flows

The amount of money, both incoming and outgoing, that is expected to be generated or expended in the future.