The correct answer is: C. stock prices to fall more than bond prices.
When market interest rates are expected to rise, the prices of bonds will fall. This is because the yield on a bond is inversely related to its price. When interest rates rise, the yield on a bond also rises, which makes existing bonds less attractive to investors. As a result, bond prices fall to bring the yield back in line with the new market rate.
Stock prices, on the other hand, are not as directly affected by changes in interest rates. This is because stocks are a riskier investment than bonds, and investors are willing to pay a higher price for them in order to earn a higher return. However, if interest rates rise significantly, it could lead to a decline in economic activity, which would hurt corporate profits and stock prices.
In conclusion, when market interest rates are expected to rise, you would expect stock prices to fall more than bond prices.