Computer stocks currently provide an expected rate of return of 23%. MBI, a large computer company, will pay a year-end dividend of $3.40 per share.
a. If the stock is selling at $64 per share, what must be the market's expectation of the growth rate of MBI dividends? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Growth rate .....................................%
b-1. If dividend growth forecasts for MBI are revised downward to 10% per year, what will happen to the price of MBI stock?
The price will fall.
The price will rise.
b-2. What (qualitatively) will happen to the company's price–earnings ratio?
The price–earnings ratio will rise.
The price–earnings ratio will fall.