Question

Why might growth stocks benefit disproportionate from low rates?

Why might growth stocks benefit disproportionate from low rates?

Homework Answers

Answer #1
  • Growth stocks are those companies expected to grow sales and earnings at a faster rate than the market average.
  • Growth stocks often look expensive, trading at a high P/E ratio, but such valuations could actually be cheap if the company continues to grow rapidly which will drive the share price up.
  • Investment in growth stock is risky because they do not pay dividend
  • Stocks are valued based on the net present value of the underlying company’s future cash flows. The discount rate used to calculate that net present value is benchmarked to interest rates. So, when interest rates go lower, so does the discount rate. The lower the discount rate, the higher the net present value
  • .A drop of 150 to 200 basis points in real long-term interest rates, which has occurred in recent few years, can impact the price as much as 50% as in the case of amazon
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Briefly discuss why stocks with low and negative betas offer such low rates of return when...
Briefly discuss why stocks with low and negative betas offer such low rates of return when stocks are said to be risky in general.
Briefly discuss why stocks with low and negative betas offer such low rates of return when...
Briefly discuss why stocks with low and negative betas offer such low rates of return when stocks are said to be risky in general.
Low rates of economic growth are related to financial systems in developing countries. What is this...
Low rates of economic growth are related to financial systems in developing countries. What is this situation called and why might it exist?
Countries that have high rates of savings also have low rates of growth. stock market bubbles....
Countries that have high rates of savings also have low rates of growth. stock market bubbles. low rates of investment. high rates of investment.
Why must economic growth rates exceed population growth rates for a country to progress?
Why must economic growth rates exceed population growth rates for a country to progress?
Question 51 pts The very poorest LDCs have relatively low rates of economic growth and relatively...
Question 51 pts The very poorest LDCs have relatively low rates of economic growth and relatively high rates of population growth. high rates of economic growth and relatively low rates of population growth. low rates of both population growth and economic growth. high rates of both population growth and economic growth. Flag this Question Question 61 pts Capital is rising at 2% per year while the quantity of labor rises at 3% per year. Solow would predict: there will be...
Identify two reasons why secondary benefits might be excluded from a benefit-cost analysis of proposed environmental...
Identify two reasons why secondary benefits might be excluded from a benefit-cost analysis of proposed environmental policy.
Why would low policy rates suggest low long-term interest rates? A simple answer- less than a...
Why would low policy rates suggest low long-term interest rates? A simple answer- less than a paragraph
Explain why depository institutions receive a disproportionate amount of attention from government regulators (compared to most...
Explain why depository institutions receive a disproportionate amount of attention from government regulators (compared to most other industries).
Why do low price-earnings stocks trade cheap in the market?
Why do low price-earnings stocks trade cheap in the market?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT