When the market risk premium rises, stock prices will
d. have excess volatility
Please explain your answer
When market risk premium rises, stock prices will b. fall- This happens because when the risk premium rises, this takes the people who are risk averse out of the market and more coaxing is needed to get them back. This helps the bond market because there is less risk there and it lowers interest rates in order to get people back into investing. However, less people are investing in stocks and their value falls.