1. (10 pts) Microsoft currently has 21 long-term bond issues outstanding with various times-to-maturity and coupon rates. One of these bonds matures on June 1, 2039, approximately 25 years from today. It pays a coupon rate of 5.20% (for simplicity, assume that coupons are paid annually). The bond is currently selling for $1,153.06, based on a face value of $1,000. Which of estimates of yield-to-maturity below is closest to that on this instrument? 10 pts show all work

2. (10 pts) Microsofts current dividend per share is $1.07. You expect dividends to grow at 5% per year into perpetuity. Microsofts beta is 0.85. The current riskfree rate is 2.9%, and the expected return on the market portfolio is 7.4%. Use the CAPM to estimate Microsofts required return on equity. Then, using a perpetuity formula to project Microsofts current dividend per share into the infinite future, and discounting at the cost of equity, what is the intrinsic (expected) value of the firm based on the projected dividends: 10pts. Show all work.

3. (10 pts) Suppose Microsoft Corporations projected free cash flow for next year is FCF = $8.75 billion, and due to expected lower revenues from personal computers and slower growth of surface sales FCF is expected to grow at a constant rate of only 4.5% into the infinite future. The companys weighted average cost of capital is 11.5%. Use the Gordon Growth Model to estimate the value of the corporation. 10pts. Show all work. 4. (10pts) Assume that you are setting up your retirement plan by considering two investment plans together. (Your retirement in 30 years). You want to earn a total of $1,000,000 after 30 years from the following two investment plans together. o Investment plan #1: You currently have $20,000 in the bank and decide to invest that $20,000 in a money market account for 30 years which you feel will generate a return on 6% per year. o Investment plan #2: You also intend on investing additional money at the end of each year for 30 years in a stock market mutual fund that you believe will return 10% per year. SHOW ALL WORK.

5. In your investment plan #2, if you make 30 equal annual investments at the end of each year for 30 years into the stock market mutual fund, how much will you need to invest each year in order to have a total of $1,000,000 from both investment plans after 30 years? (Total of $1,000,000 is the sum of your two investment outcomes after 30 years)