Organic Investments


Threading the Needle on Interest Rates

Why do stocks go down when interest rates go up? Because all assets are priced as the present value of their future cash flows and interest rates are the discount rate used to calculate this present value: the higher the interest rate, the lower the long term value of these cash flows. For example, a fixed 5-year asset that pays $5 each year and $105 in year five has a present value (what it is worth today) of $109.16 when interest rates are 3%. However, if interest rates rise to 6%, this same asset would have a present value of $95.79. When economies are strong, there is more demand to the point where it can create higher prices of all assets, especially when there is access to inexpensive

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