what is the net effect on the stock in the stock exchange which of course is your interest rate and the value
Answers
Answer:
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Explanation:
The investment community and financial media tend to obsess over interest rates and for a good reason. Interest rates refer to the cost someone pays for the use of someone else's money.
If you're ever looking for a topic to help wrap up a conversation quickly so that you can be left alone to think about your investments, then start talking about interest rates. Your listener's eyes are guaranteed to glaze over, and you'll be alone in no time.
But for those who own investments, the topic is not as dry as you think. In fact, it is something investors should make an effort to understand. According to financial theory, interest rates are fundamental to company valuation, and therefore play an important role in how we put a price on stocks.
KEYS
The direction of interest rates has an impact on stock valuation, stock pricing, and risk premium.
For investors to invest in something riskier than the safe Treasury note, or risk-free rate, they require a higher return or risk premium.
The direction of interest rates impacts a company's theoretical value and that of its shares, and therefore the risk premium.
When interest rates fall, and all else is constant, the share value will likely rise.
When interest rates rise, and all else holds steady, the share value will likely fall.