All else the same, a decrease in the risk-free rate will cause a(n) _____ in stock price in all dividend valuation models.

Question

Quizplus · Accepted Answer

In all dividend valuation models, the present value of future cash flows is discounted at the risk-free rate. A decrease in the risk-free rate will lead to a decrease in the discount rate, thus increasing the present value of future cash flows and ultimately increasing the stock price.

All Else the Same, a Decrease in the Risk-Free Rate