Computer stocks currently provide an expected rate of return of 25%. MBI, a large computer company, will pay a year-end dividend of $3.70 per share.

a. If the stock is selling at $67 per share, what must be the market's expectation of the dividend growth rate? (Round your answer to 2 decimal places.)

b. If dividend growth forecasts for MBI are revised downward to 7% per year, what will happen to the price of MBI stock?

a.The price will fall.

b. The price will rise.

c. What (qualitatively) will happen to the company's priceearnings ratio?

a. The priceearnings ratio will rise.

b. The priceearnings ratio will fall.