1. Stock Market and Interest Rate charts 1

2. Stock market indexes  Dow Jones Industrial Average List http://money.cnn.com/data/dow30/ http://money.cnn.com/data/dow30/  S&P 500 Complete list http://nyjobsource.com/sandp1.html http://nyjobsource.com/sandp1.html  NASDAQ http://en.wikipedia.org/wiki/Nasdaq_ Composite http://en.wikipedia.org/wiki/Nasdaq_ Composite http://en.wikipedia.org/wiki/NASDAQ http://www.allstocks.com/NASDAQ/ 2

3. 3 Long-term View of the DJIA

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7. S&P 500 Dividends, EPS (annual data) 7

8. 8 Stock Price=earnings x Multiple Multiple = price to earnings ratio High multiples are sensible only if earnings are going to grow rapidly

9. S&P 500 P/E and P/D multiples 9

10. Trailing, Forward, Operating Earnings 10

11. 11

12. 12 P/E ratio Average since 1988 about 19, longer term average 15.9

13. 13 The forward PE ratio got quite high in the late 90s.

14. Forward PE ratio increasing 14

15. Dot com bubble 15 Historical closing high 5049 on March 10, 2000

16. Trailing PE ratio, differs by sector 16

17. USA TODAY Internet 100 9/29/00

18. 18 Interest rate slides

19. 19 The Federal Reserve “targets” the federal funds rate.

20. 20 Treasury Interest Rates

21. 21 Prime Rate Constant at 3.25% since Jan. 2009

22. 22 Inflation

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24. PCE deflator 24

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27. US Tax Rates 27

28. 28 Dividend Payout

29. Interest Rate: Forward and Futures  Have looked at historical interest rates for perspective  Yield curve is forward looking and contains implicit rates for future years  Interest rate futures are traded on CME group exchanges and provide market expectations  Interest rates are relatively low in 2012  Cannot “lock in” today’s low rate – can only lock in forward or futures rates

30. Forward interest rates  Hypothetical interest rates available Fixed for one year @ 3% Fixed for two years @ 4% Fixed for three years @ 5%  The cost for the first year is 3%.  The two year loan costs 8% over two years, of which 3% is the first year cost, leaving 5% as the implied forward rate for the second year.  If you take the three year fixed period, the cost for three years is 15%  subtracting 3% for the first year and 5% for the second year, leaves 7% as the cost in the third year.  Thus, 5% and 7% are the year two and three forward rates.

31. More Accurate Forward Rate Calculation (accounts for compounding)  i r j = interest rate from time i to time j.  one year rate ; 0 r 1 = 3% -- given  two year cost: (1.04) 2 = (1.03)(1+ 1 r 2 )  1 r 2 = 5.01%  three year cost: (1.05) 3 = (1.03)(1.0501)(1+ 2 r 3 )  2 r 3 = 7.029%

32. Farm Credit Services of Mid- America rates as of 2/4/2011 32 Product MultiFlexForward 1-Year3.50% 3-Year3.95%4.18% for years 2 and 3 5-Year4.60%5.58% for years 4 and 5 7-Year5.35%7.25% for years 6 and 7 10-Year6.05%7.70% for years 8-10 15-Year6.45%7.25% for years 9-15

33. Interest Rate Futures  CME group  Treasuries of different maturities and Eurodollar Futures  Eurodollar futures are on 3 month LIBOR interest rates London Interbank Offered Rate Traded many months into the future Prices quoted as 100 minus the percentage interest rate  5% interest would be quoted as a Eurodollar futures price of 95.  http://www.cmegroup.com/trading/interest-rates/ http://www.cmegroup.com/trading/interest-rates/

34. Eurodollar Futures 34 3 month LIBOR futures 9/4/2012 rate % Sep '12 (GEU12)99.6150.385 Oct '12 (GEV12)99.6350.365 Nov '12 (GEX12)99.640.36 Dec '12 (GEZ12)99.6450.355 Dec '13 (GEZ13)99.6050.395 Dec '14 (GEZ14)99.440.56 Dec '15 (GEZ15)99.0650.935 Dec '16 (GEZ16)98.471.53 Dec '17 (GEZ17)97.8852.115 Dec '18 (GEZ18)97.482.52 Mar '20 (GEH20)97.1552.845 Jun '20 (GEM20)97.092.91