Suppose there is a reduction of the return provided on U.S. Treasury bonds. We should expect the current price of stocks to: $ \mathrm{P}_{\text {today }}=\frac{\mathrm{D}_{\text {today }}(1+g)}{r f+r p-g} $

Question

Quizplus · Accepted Answer

A reduction in the return provided on U.S. Treasury bonds, which are considered a risk-free asset, decreases the risk-free rate ($r_f$) in the given formula. Since $r_f$ is in the denominator, a decrease in $r_f$ increases the value of the fraction, leading to an increase in the current price of stocks.

Suppose There Is a Reduction of the Return Provided on U.S