Final answer:
When interest rates fall, both bonds and stocks typically go up due to the increased attractiveness of existing bonds and the reduced borrowing costs that can boost corporate profits and economic growth. Option A is correct.
Step-by-step explanation:
If interest rates fall, the correct answer is A) Bonds go up, stocks go up. When interest rates decrease, the prices of existing bonds typically increase because they are paying a higher interest rate than newly issued bonds. Investors will pay more for these older, higher-interest bonds, driving up their value.
Consequently, lower interest rates can also be favorable for stocks as borrowing costs become cheaper for companies, potentially spurring investment and economic growth which can lead to higher stock prices.
To summarize, a decrease in interest rates generally causes existing bond prices to rise because their fixed interest payments are more attractive compared to new bonds, and stocks may also rise because lower borrowing costs can lead to increased corporate profits and economic expansion.