Assume an investor buys 1,000 shares of Microsoft at $US 137.41 on October 14, 2019. Assume Microsoft paid dividends of $2.24 throughout the last year. On October 13, 2020, the investor sells the stock at a price of $223.22.

a. What is the one-year holding period return for this stock? 3 marks

b. If the forward dividend is expected to be $2.50 for the next 12 months, what is the current (October 13, 2020) dividend yield? How does this yield compare to the 10-year risk-free rate (Krf)? What conclusions do you draw from this? 3 marks

c. Microsoft management is thinking about paying an extraordinary dividend of $10.00 in one year. This would be much like the $3.00 extraordinary dividend paid by Microsoft on November 17, 2004. How much should the $10.00 extraordinary dividend add to the stock price today? Assume that Ke = 5.00%. - 3 marks

d. In your opinion, and given the data above, is Microsoft more of a Widows and Orphans stock or Growth stock, or something else? Hint: consider the Risk vs. Reward dynamic here. 3 marks

e. Microsoft has a current Price/ Earnings ratio of 38.74X. The average Price/ Earnings ratio for Standard & Poors 500 stocks in December 2018 was 19.39X. Why might someone say that P/E ratios are lazy, notwithstanding that everyone uses them? Especially right now. Do you think MSFT is over-priced, or not? 3 marks