The ?fundamental value? of a stock is the expected present value of all future dividends from a stock. P = d1/(1+r) + d2/(1+r)2 + d3/(1+r)3 + ....dT/(1+r)T where T is the end of the firm?s life (which might be infinite) d1, d2, ... dT represent dividend payments in years 1 through T. r is the interest rate Given the fundamental value theory, stock prices will rise with: lower interest rates. an increase in future expected dividends. A lower tax rate on dividends.
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