Two Examples of "Interest Rates Rise, Assets' Values Fall"

Assets prices are greatly affected by the risk free rate. For example, stocks and bonds.

Stocks

One way to evaluate stock prices is to use the "dividend discount model – DDM". DDM only considers stocks' dividends when deriving their prices.

When Stocks Pay Fixed Dividends

Under DDM, a stock's price is the present value of all its future dividends. Assuming the stock pays annual dividend, and has just paid its dividend. The interest is r, then the pricing formula is:

For example, stock A pays quarterly dividends of 1 dollar. The following table shows its prices based on different interest rates(a quarterly interest rate is derived by dividing interest rate by 4).

Stock A's Price	Interest Rate
$100	4%
$50	8%
$33.33	12%

When Stocks Pay Increasing or Deceasing Dividends

When a stock pays dividends that changes with a ratio of d every year and the interest is r, its pricing formula becomes:

r has to be bigger than d, because there are no negative stock prices.

For example, stock A pays quarterly dividends of 1 dollar which increases by 1% quarterly. The following table shows its prices based on different interest rates(a quarterly interest rate is derived by dividing interest rate by 4).

Stock A's Price	Interest Rate
$400	5%
$66.67	10%
$36.36	15%

Suggested reading: Stock Pricing Based on Dividend Discount Model

Bonds

A bond's price is the present value of all coupons and its face value when it does not default. Assuming a 10-year bond pays annual coupons, the interest rate is r, its pricing formula is:

For example, a 10-year bond with a face value of $100 and a coupon rate of 5% would have prices listed below based on different interest rates:

Stock A's Price	Interest Rate
$150	0%
$100	5%
$69.28	10%

Suggested reading: Bond Pricing with no Default Risks and a Fixed Interest Rate

Conclusion

With all other conditions unchanged, bonds and stocks' prices drop once interest rate rises, and their prices rise otherwise.