For the following questions refer to Figure 16.2 below.
-Your grandmother is a follower of the financial press and decides to quiz you about your knowledge of financial markets.She asks you to explain the price of stock prices based on the financial capital arbitrage equation.She shows you the graph shown in Figure 16.2 above,which shows the Dow Jones Industrial (DJI)Average for 2000-2010.She asks you to explain the cause in the rise of stock prices for the years 2007-2009.You tell her:

Question

For the following questions refer to Figure 16.2 below. 
-Your grandmother is a follower of the financial press and decides to quiz you about your knowledge of financial markets.She asks you to explain the price of stock prices based on the financial capital arbitrage equation.She shows you the graph shown in Figure 16.2 above,which shows the Dow Jones Industrial (DJI)Average for 2000-2010.She asks you to explain the cause in the rise of stock prices for the years 2007-2009.You tell her:

Quizplus · Accepted Answer

According to the financial capital arbitrage equation, a falling DJI (which represents a decline in the stock market) leads to negative capital gains in financial assets, and this drives stock prices down. Therefore, the rise in stock prices for the years 2007-2009 (which were part of the financial crisis) is not explained by this equation, but rather is an anomaly or a result of other factors. Option A is incorrect because it suggests that rising stock prices are a response to capital losses, which is not consistent with the equation. Option B is not an actual explanation. Option C is incorrect because it states that falling capital gains (which are a key component of the equation) have no impact on stock prices, which is not true. Finally, option E is not relevant to the question because it refers to the decline in stock prices, whereas the question asked about the rise in stock prices.

For the Following Questions Refer to Figure 16