A firm pays a $1.50 dividend at the end of year one. It has a share price of $60 (P₀) and a constant growth rate (g) of 10 percent.

a. Compute the required (expected) rate of return (K_e). (Do not round intermediate calculations. Round the final answer to 2 decimal places.)

Required rate of return %

Also indicate whether each of the following changes would make the required rate of return (K_e) go up or down. (In each question below, assume only one variable changes at a time. No actual numbers are necessary.)

b. If the dividend payment increases;

multiple choice 1

• K_e will go up.

• K_e will go down.

• K_e remains constant.

c. If the expected growth rate increases;

multiple choice 2

• K_e will go up.

• K_e will go down.

• K_e remains constant.

d. If the stock price increases;

multiple choice 3

• K_e will go up.

• K_e will go down.

• K_e remains constant.