 Hello everyone, today I'm going to be using an example from the real world to illustrate the concept between interest rate, the relationship between interest rate and equity valuation. What we know is as interest rate goes up, equity goes down. Now why? If we look at today's news, the 10-year treasury yields reaches the highest level in 16 years. Simply put, the risk-free rate is going up. As a result, the equity market, which is the Dow, the Nasdaq and S&P 500 are going down. Why? There are two reasons for this. One is investors have alternative higher yield, which is the risk-free rate, the 10-year treasury. That's one reason. The other reason is the time value of money. As interest rate goes up, the risk-free rate goes up. When you discount your future cash flow, you're going to be receiving a lower amount of discounted cash flow. As a result, your equity valuation goes down. As a result, the stock price goes down. As a result, the stock market goes down. This is how we use it in accounting in the real world. In the real world, the market could reverse, of course, but that's the reason why today the futures are down because why the 10-year treasury is up. As interest rate goes up, the equity valuation goes down due to the time value of money. If you're studying for the CPA exam or if you're an accounting student, don't forget about farhat-lectures.com. We are here to help you. Good luck. Study hard and, of course, stay safe.