A firm pays a $1.50 dividend at the end of year one (D1), has a stock price of $117 (P0), and a constant growth rate (g) of 10 percent.

Compute the required rate of return (K_e).

Rate of Return- ?

Indicate whether each of the following changes will increase or decrease the required rate of return (K_e). (Each question is separate from the others. That is, assume only one variable changes at a time.) No actual numbers are necessary.

Divided yield- ?

Required rate of return- ?

If the expected growth rate increases:

Required rate of return- ?

If the stock price increases:

Divided yield- ?

Required rate of return- ?