A firm's stock price will be higher when the interest rate is ____ and the value of the firm's expected future profits are ____.
A) lower; larger
B) lower; smaller
C) higher; larger
D) higher; smaller

Question

Quizplus · Accepted Answer

When interest rates are lower, the cost of borrowing is reduced, making it cheaper for firms to finance investments, which can lead to higher expected future profits. Additionally, lower interest rates make stocks more attractive compared to bonds, increasing demand and stock prices. Larger expected future profits also increase the stock's value as they indicate better financial performance.

A Firm's Stock Price Will Be Higher When the Interest