Question

Which of the following factors might affect stock returns?

a.Business cycle
b.Interest rate fluctuations
c.Inflation rates
d.All of the above

Answer 1

Factors that might affect stock returns include the business cycle, interest rate fluctuations, and inflation rates, all of which can impact corporate earnings and investor sentiment.

Step-by-step explanation:

The factors that might affect stock returns include the business cycle, interest rate fluctuations, and inflation rates. To elaborate:

• The business cycle affects corporate earnings and, consequently, stock returns. During expansion phases, earnings may grow, boosting stock prices, whereas during recessions, earnings may fall, leading to declines in stock prices.
• Interest rate fluctuations can influence the cost of borrowing. Higher interest rates can reduce business investment and consumer spending, leading to a fall in stock prices. Conversely, lower interest rates can stimulate these activities, potentially leading to higher stock prices.
• Inflation rates impact purchasing power and can affect corporate profits. High inflation may lead companies to increase prices, which can lead to decreased consumer demand and ultimately negatively impact stock returns.

Therefore, the answer to the question is d. All of the above.