If Investors Become More Pessimistic and Expect That Long-Term Earnings

Multiple Choice

If investors become more pessimistic and expect that long-term earnings will decrease at the same time that the real rate of interest increases, we would

A) initially expect the price of stocks to increase.
B) initially expect the price of bonds to increase.
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.