Question #20
Reading: Reading 39 Economics and Investment Markets
PDF File: Reading 39 Economics and Investment Markets.pdf
Page: 7
Status: Unattempted
Correct Answer: B
Question
Which of the following is least likely to explain a decline in the S&P 500 index:
Answer Choices:
A. An increase in Treasury yields
B. A decrease in expectations about corporate earnings
C. A decline in expected inflation
Explanation
Equity market prices are positively related to expected earnings/cash flows and negatively
related to discount rate. Discount rate is positively related to inflation expectations and
treasury yields (risk-free rate).