, which calculates how much a company’s future profits are worth to investors today.In step two, you’d have to account for the fact that time really is worth money to investors. Profits that lay way out in the future are worth less to a company’s shareholders than profits that are earned today, because collecting them requires locking up capital and skipping other investment opportunities.
Are there any simpler reasons higher interest rates might be bad for stocks that you’ve glossed over? Sure. One of the key reasons stock prices went nuts over the past few years is that there was just a ton of cash sloshing around. Or, as investors like to say, there was a lot of “liquidity” in the market.
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