Question 1

You have been asked to perform a stock valuation prior to the annual shareholders meeting next week. The two models you have selected to value the firm are the dividend discount model and the discounted cash flow model.

Explain why the estimates from the two valuation methods differ. Address the assumptions implicit in the models themselves as well as those you made during the valuation process.

Question 2

In a rising interest rate environment, how would bond values change over time? As a bond investor, what measures would you take to manage rate risk?