Computer stocks currently provide an expected rate of return of 19%. MBI, a large computer company, will pay a year-end dividend of $5 per share.
Requirement 1:
If the stock is selling at $52 per share, what must be the market's expectation of the growth rate of MBI dividends? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)
Growth rate %
Requirement 2:
(a) If dividend growth forecasts for MBI are revised downward to 5% per year, what will happen to the price of MBI stock?
(b) What (qualitatively) will happen to the company's price–earnings ratio?