QUESTION 2 a. Discuss why the present value of cash flows and the relative valuation ratios valuation approaches are competitive or complementary. (5 marks) b. Under what conditions will it be ideal to use one or several of the relative valuation ratios to evaluate a stock? (5 marks) c. The current rate of inflation is 11.7 percent, and long-term bonds are yielding 13.6 percent. You estimate that the rate of inflation will increase to 6 percent. What do you expect to happen to long-term bond yields? Compute the effect of this estimated change in inflation on the price of a 15-year, 10 percent coupon bond with a current yield to maturity of 18 percent. (5 marks) (Total: 30 marks) 1 QUESTION 2 a. Discuss why the present value of cash flows and the relative valuation ratios valuation approaches are competitive or complementary. (5 marks) b. Under what conditions will it be ideal to use one or several of the relative valuation ratios to evaluate a stock? (5 marks) c. The current rate of inflation is 11.7 percent, and long-term bonds are yielding 13.6 percent. You estimate that the rate of inflation will increase to 6 percent. What do you expect to happen to long-term bond yields? Compute the effect of this estimated change in inflation on the price of a 15-year, 10 percent coupon bond with a current yield to maturity of 18 percent. (5 marks) (Total: 30 marks) 1