The value of common stock will likely decrease if:
A)The investment horizon decreases
B)The growth rate of dividends increases
C)The discount rate increases
D)Dividends are discounted back to the present

Question

Quizplus · Accepted Answer

The discount rate is the rate of return required by investors to invest in a particular stock. If the discount rate increases, it means that investors require a higher rate of return for the same level of risk. This makes the stock less attractive, causing the price to decrease. A, B, and D are incorrect because they do not directly impact the value of the stock.

The Value of Common Stock Will Likely Decrease If