5 The table below shows various bond prices at different maturity levels for zero coupon bonds Based on this information, how would you describe the shape of the yield curve is it flat, upward sloping, downward sloping or there is not enough information present to make a determination What does this shape mean Note that the bonds all have $1,000 face value (10 marks) maturity price maturity price 1 950 24 2 900 70 3 860 38 4 820 27 The current yields for zero coupon bonds with varying maturities are outlined in the table below What is the forward rate from the end of year 2 to the end of Year 3 What does this rate denote (5 marks) Maturity (Years) Yield 1 2 75 2 3 25 3 3 65 4 4 00 5 4 15 The nominal rate of interest is 6 and the real rate of interest is 3 What is the expected inflation rate (2 marks) Jennifer and Tim are going skiing Jennifer says to Tim, I hope the curve of the ski hill corresponds to the slope of the curve that exists between bond prices and yields Tim looks puzzled and says, I dont want to ski uphill What do you think of Tims comment (2 marks) Tim does not want them to increase Part B Stock Markets and Share Pricing (25 possible marks contributing to 8 of the total assignment weight ) JenniCo Inc shares are trading for $500 Analysts expect the company to generate net income of $41 7 billion JenniCo has 900 million shares outstanding The average P E ratio of JenniCo's competitors is 18 What is the fair price for a share of JenniCo (5 marks) Ivy Corp just paid out $1 7308B in dividends and repurchased $4 3983B worth of shares Ivy has 1 12B shares outstanding Ivy has told the market to expect total payouts to grow at an annual rate of 2 Investors expect a 10 rate of return on Ivy shares What is the Total Payout model estimate of the stock price today assuming that all payouts occur annually (The next payout will occur in exactly one year ) (5 marks) Assume that the industry average market to book ratio for the car industry is 3 Estimate the fair value of Madi Corp based on the industry average multiple and the data supplied below (5 marks) Maturity (Years) Yield 1 2 75 2 3 25 3 3 65 4 4 00 5 4 15 You are an investor considering the purchase of shares in Nanamobiles, a maker of specialty scooters Shares of Nanmobiles are trading for $75 and its book value per share is $26 00 You have collected market to book information on Nanamobiles main competitors this is in the table below What is the fair value of Nanamobile shares and should you buy them (5 marks) M B Grandpa Motors 3 5 Pops Scooter 2 4 Retired Roadmasters 3 0 Old Dog Enterprises 4 9 All equity markets are efficient, Sarah said I disagree, said Chloe Large cap markets are efficient but small cap markets are not, she continued Olivia went further What about developing country markets I think these are not efficient What do you think Is Sarah, Chloe or Olivia right Or, are none of them right Take a position and support it (5 marks)

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5. The table below shows various bond prices at different maturity levels for zero coupon bonds. Based on this information, how would you describe the

5. The table below shows various bond prices at different maturity levels for zero coupon bonds. Based on this information, how would you describe the shape of the yield curve is it: flat, upward sloping, downward sloping or there is not enough information present to make a determination? What does this shape mean? Note that the bonds all have $1,000 face value. (10 marks) maturity price

maturity	price
1	950.24
2	900.70
3	860.38
4	820.27

The current yields for zero-coupon bonds with varying maturities are outlined in the table below. What is the forward rate from the end of year 2 to the end of Year 3? What does this rate denote? (5 marks)

Maturity (Years)	Yield
1	2.75%
2	3.25%
3	3.65%
4	4.00%
5	4.15%

The nominal rate of interest is 6% and the real rate of interest is 3%. What is the expected inflation rate? (2 marks)

Jennifer and Tim are going skiing. Jennifer says to Tim, I hope the curve of the ski hill corresponds to the slope of the curve that exists between bond prices and yields. Tim looks puzzled and says, I dont want to ski uphill. What do you think of Tims comment? (2 marks) Tim does not want them to increase.

Part B: Stock Markets and Share Pricing (25 possible marks contributing to 8% of the total assignment weight)

JenniCo Inc. shares are trading for $500. Analysts expect the company to generate net income of $41.7 billion. JenniCo has 900 million shares outstanding. The average P/E ratio of JenniCo's competitors is 18. What is the fair price for a share of JenniCo? (5 marks)

Ivy Corp just paid out $1.7308B in dividends and repurchased $4.3983B worth of shares. Ivy has 1.12B shares outstanding. Ivy has told the market to expect total payouts to grow at an annual rate of 2%. Investors expect a 10% rate of return on Ivy shares. What is the Total Payout model estimate of the stock price today assuming that all payouts occur annually? (The next payout will occur in exactly one year.) (5 marks)

Assume that the industry average market-to-book ratio for the car industry is 3. Estimate the fair value of Madi Corp based on the industry average multiple and the data supplied below. (5 marks)

Maturity (Years)	Yield
1	2.75%
2	3.25%
3	3.65%
4	4.00%
5	4.15%

You are an investor considering the purchase of shares in Nanamobiles, a maker of specialty scooters. Shares of Nanmobiles are trading for $75 and its book value per share is $26.00. You have collected market-to-book information on Nanamobiles main competitors; this is in the table below. What is the fair value of Nanamobile shares and should you buy them? (5 marks)

	M/B
Grandpa Motors	3.5
Pops Scooter	2.4
Retired Roadmasters	3.0
Old Dog Enterprises	4.9

All equity markets are efficient, Sarah said. I disagree, said Chloe. Large cap-markets are efficient but small-cap markets are not, she continued. Olivia went further. What about developing country markets. I think these are not efficient. What do you think? Is Sarah, Chloe or Olivia right? Or, are none of them right? Take a position and support it. (5 marks)