Question 1 Newton Newton wishes to invest in one of two securities, details of which are as follows. Bonds of Kirkby plc These are 10% bonds which will be redeemed in five years' time. Interest on the bonds has just been paid and their current ex interest market price is 110. Newton would require a return of 9% from a security of this type.

Ordinary Shares of Sutton plc Dividends on these shares have grown by approximately 4% per year in recent years and a dividend of 60p has just been paid. The ex div market price of these shares is 7.10. Newton would require a return of 12% from a security of this type. Required:

(a) Calculate and comment on the value of each security from Newton's point of view, and discuss why these values are different from the quoted market values. (8 marks)

(b) Critically discuss the differences between the different forms of capital market efficiency for which capital markets are tested. (13 marks)

(c) Briefly discuss whether the theory of capital market efficiency can explain periods of investor speculation when share prices rise and fall significantly. (

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