(i) Capital markets are markets for buying and selling equity and debt instruments. Describe the main features of the following international capital markets:

a. Spot and futures market

b. Mortgage market

c. Derivative market

d. Foreign exchange market

e. Commodities market.

15 marks

(ii) Given that, P0 = $80, D1 = $4, and rs = 14%. Accurately compute g. 5 marks

(iii) If the expected rate of return is ^rc= D1/P0 + g = $1.50/$25 + 4% = 10% and the required rate of return is 10.6 percent. If investors seek to sell:

(a) What price will they seek to sell at? 5 marks

(b) At what point (i.e. percentage) will the stock be in equilibrium? 5 marks