Which of the following is true?
A) An increase in the interest rate will tend to increase stock prices.
B) A reduction in the interest rate will tend to increase stock prices.
C) An increase in the inflation rate will tend to increase stock prices.
D) There is no reason to believe that changes in interest rates will influence stock prices.

Question

Quizplus · Accepted Answer

When interest rates are reduced, borrowing becomes cheaper, and investors tend to borrow money to invest in the stock market. The increased demand for stocks tends to drive up stock prices. On the other hand, when interest rates are increased, borrowing becomes more expensive, and investors tend to shy away from borrowing money to invest in the stock market. Therefore, a reduction in the interest rate will tend to increase stock prices.

Which of the Following Is True