Correct Answer: A

Explanation:

• Option A is correct because a fall in the stock's risk premium reduces the required rate of return for investors. According to the dividend discount model and other valuation models, a lower required return increases the present value of future cash flows, leading to a higher stock price.

• Option B is incorrect because a rise in expected inflation typically leads to higher nominal interest rates, which increases the discount rate used in stock valuation. This higher discount rate reduces the present value of future cash flows, putting downward pressure on stock prices.