(a) Explain and discuss how each of the major domestic macroeconomic factors may affect stock prices. (50 marks)

(b) ZZZ plc is about to pay a dividend for the year 2021 of 16 pence per share. The dividend one year from now (2022) is expected to be 12 pence. Dividends are expected to grow by 10% for the following 3 years (2023, 2024, 2025). After this dividends are expected to grow at 6% per annum indefinitely.

The company has a beta of 0.9. The current risk free interest rate is 5% and the market return is estimated at 10%.

Using the above information, place a value on the shares of ZZZ plc. If the market price for shares of ZZZ is 5, determine whether the shares are underpriced or overpriced. Explain why.