a.

Computer stocks currently provide an expected rate of return of 15%. MBI, a large computer company, will pay a year-end dividend of $2 per share. If the stock is selling at $40 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.)

Growth rate

%

b-1.	If dividend growth forecasts for MBI are revised downward to 5% per year, what will be the price of the MBI stock? (Round your answer to 2 decimal places.)

Price

$

b-2.	What (qualitatively) will happen to the company's priceearnings ratio?