The Reason Price-Earnings Ratios and Inflation Are Related Is Because

question 11

Multiple Choice

The reason price-earnings ratios and inflation are related is because:

• A)as inflation increases, the required return in the market rises, pushing down the prices of securities.
• B)as inflation increases, the required return in the market rises, pushing up the prices of securities.
• C)as price-earnings ratios fall, the market changes its expectations about the future rate of inflation.
• D)as price-earnings ratio rise, the market anticipates that inflation will decrease, sending stock prices higher.

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