Frequently, Stock Prices and Interest Rates Move in Opposite Directions

Multiple Choice

Frequently, stock prices and interest rates move in opposite directions. This can be explained by the following:

A) If interest rates rise, debt instruments now offering higher yields become more attractive relative to some stocks, causing stock sales and declining equity prices, ceteris paribus
B) If interest rates fall, debt instruments will be sold and money will flow into equities, which should perform better due to the lower cost of capital created by lower interest rates
C) As interest rates rise, shareholders will expect less of a minimum rate of return
D) Choices A and B only
E) None of the above