If Interest Rates Fall and All Else Is Equal, the Price

question 14

Multiple Choice

If interest rates fall and all else is equal, the price of a stock will

• A)fall.
• B)rise.
• C)remain unchanged.
• D)adjust to reflect a lower ratio of price to (current)earnings.

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Definitions:

Moral Hazard

Moral Hazard refers to situations where one party is more likely to take risks because the negative consequences of their actions are borne by another party.

Adverse Selection

A situation where asymmetric information leads to the selection of undesirable participants in a contract or agreement, often seen in insurance and financial markets.

Bank Deposits

Funds that customers place into banking institutions for safekeeping and to earn interest.

Asymmetric Information

A situation in markets where one party in a transaction has more or superior information compared to another.