If the Risk Premium Associated with Holding Stocks Decreases at the Same

Multiple Choice

If the risk premium associated with holding stocks decreases at the same time that investors become more pessimistic and expect that long-term earnings will decrease, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to decrease.
C) initially expect the price of stocks to decrease.
D) be unable to determine the impact on the price of stocks unless we knew the relative magnitudes of the changes.