Analyse the relationship between bond prices and interest rates during recession. (4m) (250 words)

An investor estimates that next years net income for Hilary Pullman Hotel would be RM 8 million. The company has 0.5 million shares outstanding and decided to pay RM 0.5 million to the preferred stockholders from its net income. Listed companies similar to Hilary Pullman Hotel have been recently reported to have an average price/earnings ratio of 4 times. Given the information, calculate the expected price of the stock and evaluate the problems in using Price/earnings ratio method of valuing the shares of a company. (6m)