Question: A firm pays a $1.90 dividend at the end of year one (D1), has a stock price of $40 (P0), and a constant growth rate (g) of 8 percent.
1. Compute the required rate of return (Ke). Also indicate whether each of the following changes would make the required rate of return (Ke go up or down. (For parts b, c, and d below, assume only one variable changes at a time. No actual numbers are necessary.)
2. The dividend payment increases.
3. The expected growth rate increases.
4. The stock price increases.