FINRA Series 86 Research Analyst Practice Exam 2025 – Your All-in-One Guide to Comprehensive Exam Success!

Interest rates play a critical role in investment analysis as they directly influence the cost of borrowing and, consequently, can affect investment returns. When interest rates rise, the cost of borrowing increases for both individuals and businesses. This can lead to reduced consumer spending and investment by businesses, which can slow down economic growth. Conversely, when interest rates are low, financing becomes cheaper, encouraging borrowing and investment, which can stimulate economic activity and lead to higher investment returns.

Investors consider interest rates when evaluating the potential return on investments. For example, when comparing fixed-income securities, such as bonds, the prevailing interest rate impacts their yield; higher interest rates generally result in lower bond prices. Additionally, interest rates can affect the valuation of stocks, as higher rates might lead to a higher discount rate used in discounted cash flow analyses, decreasing the intrinsic value of stocks.

The other choices do not capture the full impact of interest rates on investment analysis. While intrinsic value and market performance are affected by many factors, the direct relationship between interest rates and borrowing costs makes option B the most appropriate answer.