8

QUESTION 8 Liverpool plc is expected to pay a dividend of 5 at the end of next year (i.e., at t=1). Dividends are annual and are expected to grow at a constant growth rate forever afterwards. The current share price is 100. Assuming that shareholders of Liverpool plc. require a rate of return equal to 7.0% per year, what future dividend growth rate would be necessary to make the current share price equal to the fair value of Liverpool plc? 1.0% 2.5% 1.5% 2.0%