Over the ten-year period from 1997-2005,real interest rates fell gradually.Given this information,theory suggests that stock prices would rise over that period.

Question

Quizplus · Accepted Answer

According to the theory of finance, a decline in real interest rates leads investors to search for higher yields in risky assets like stocks. Hence, the demand for stocks increases, driving up their prices. Therefore, if real interest rates fell gradually from 1997-2005, it is likely that stock prices rose over that period.

Over the Ten-Year Period from 1997-2005,real Interest Rates Fell Gradually