Everything else held constant,if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent,then the expected return of holding GE stock ________ relative to U.S. Treasury bonds and the demand for GE stock ________.
A)rises;rises
B)rises;falls
C)falls;rises
D)falls;falls

Question

Quizplus · Accepted Answer

With the decrease in the expected return on U.S. Treasury bonds, the expected return on GE stock becomes relatively more attractive, causing the expected return of holding GE stock to rise relative to U.S. Treasury bonds. This increase in the expected return of holding GE stock would lead to an increase in the demand for GE stock. Therefore, the correct choice is A, where the expected return of holding GE stock rises and the demand for GE stock rises.

Everything Else Held Constant,if the Expected Return on U