Suppose that an unexpected report of a strong economy ignites inflation fears among investors. On the release of this news, bond prices fall but stock prices rise. Assuming that all firms follow a fixed payout ratio and one of the discounted cash flow stock valuation models holds (such as the constant growth model or supernormal growth model), which of the following statements must be true.

Interest rates have increased.

Expected future earnings for firms have increased.

Expected future earnings for firms have decreased.

Both a and b are true.

Both a and c are true.