This can be easily seen by looking at a one-year, pure discount bond. As i. increases, the denominator rises. This increase causes the price to fall. The effect upon stocks is not as certain as that upon the bonds. From this relationship it is easy to conclude that as inflation rises, the nominal interest rate rises.
Stock prices are a function of dividends and future prices as well as the interest rate.
Those dividends and future prices are determined by the earning power of the firm. When inflation occurs, it may increase or decrease firm earnings. Thus, the effect of a rise in the level of general prices upon the level of stock prices is uncertain. We do specify how the growth is to be finished. Undertake the project.