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March 31, 2015

Homework Help: finance (higher interest rate)

Posted by Jason on Friday, July 25, 2008 at 1:40pm.

A higher interest rate (discount rate) would?

A. reduce the price of corporate bonds
B. reduce the price of preferred stock
C. reduce the price of common stock
D. all of the above

I remember reading about the relationship between interest and bonds/stocks.

When the FR raises rates the price of bonds goes down.

When the rates go up stocks go up because the risk free rate increased, so stocks must cover the risk free rate + the premium rate.

I like A for the best answer....Is that correct???

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