Skyé is an equity portfolio manager investing in global equities for a large pension fund. She is currently trying to value an opportunity using the Gor-don Growth model. Today is the first of January...

Skyé is an equity portfolio manager investing in global equities for a large pension fund. She is currently trying to value an opportunity using the Gor-don Growth model. Today is the first of January 202X. She believes that Mega Tech Social Media will pay an annual dividend of £5 on the final day of the year, after which she expects dividends to grow at 10% indefinitely. She also assumes the required cost of capital is 12%.

a) State and briefly explain the equation you will use to value Mega Tech Social Media.

b) Given the above information what should the price of Mega Tech Social Media be today?

d) State one argument for and one against using the method in part (a). How applicable is this approach to valuing companies in this sector? Why?

e) Define, with the help of an equation, Interest Rate Parity. What does a ris-ing domestic interest rate mean for the anticipated return of the domestic currency?

f) The pension fund that Skyé is manages is underfunded.
i. Explain what this means.
ii. What type of pension funds can be underfunded, why?
iii. What difficulties she might face as a portfolio manager working at an underfunded pension fund?