Because a higher interest rate raises the required return of investors, which results in a lower stock price.
The Constant Growth Dividend Model is used to calculate the price of stock. P0 = Next Annual Dividend / (Investors' Required Rate of Return ? Annual Future Growth Rate of the Dividend) An increase in the nominal interest rate will cause the Investors' Required Rate of Return to increase. Expected future dividends are not expected to change. Therefore, the denominator of the formula will increase while the numerator stays the same. This will result in a decreased price for the stock.
Because a higher interest rate raises the required return of investors, which results in a lower stock price.
Because a higher interest rate raises the required return of investors, which results in a lower stock price.
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