Chapter 13, Problem 17PS

a. Computer stocks currently provide an expected rate of return of $\text{16}\%$ . MBI, a large computer company, will pay at year-end dividend of $\$\text{2}$ per share. If the stock is selling at $\$\text{5}0$ per share, what must be the market’s expectation of the growth rate of MEI dividends?
b. If dividend growth Forecasts for MBI are revised downward to $\text{5}\%$ per year, what will happen to the price of MBI stock?
c. What (qualitatively) will happen to the company’s price-earnings ratio? $\left(\text{LO 13}-\text{3}\right)$