During the 1970s, the price/earnings ratio of stocks in the S&P 500 was relatively low. This low P/E ratio was
A) surprising because the inflation rate was high during the 1970s.
B) not surprising because interest rates were low during the inflationary 1970s.
C) not surprising because interest rates were high during the inflationary 1970s.
D) surprising because the inflation rate was low during the 1970s.

Question

Quizplus · Accepted Answer

High interest rates during the 1970s made borrowing more expensive and reduced the present value of future earnings, leading to lower P/E ratios.

During the 1970s, the Price/earnings Ratio of Stocks in the S&P