In general, when interest rates rise (mark all that apply): A) Investment falls B) Investment rises C) Depreciation falls D) Depreciation rises E) Prices of financial assets fall F) Prices of financial assets rise Solution When interest rate rises, then the cost of capital would also rises. Since investment is inverse function of cost of capital, the increase in the interest rate would cause investment to fall. As interest rates are inversely related to prices of financial assets, therefore when interest rates rises, the prices of financial assets will fall. Hence, the correct answer is (A) and (E)..