You have $1 million in cash and are considering investment in bank deposits or a house.

Deposits at the bank earn 5% pa and rental yields on houses also earn 5% pa.

Assume that:

-Both bank interest rates and rental yields are not expected to change in the future.

-House rents and prices are expected to remain constant in the future.

-Bank deposit investments and house investments have the same risk.

Then unexpectedly, the central bank decreases interest rates by 1 percentage point. Banks decrease their deposit rate to 4% pa. House rents remain unchanged.

What do you expect to happen to house prices as soon as the news is released?

Select one:

a. Remain unchanged.

b. Rise by 1%.

c. Fall by 1%.

d. Rise by 25%.

e. Fall by 25%.