Computer stocks currently provide an expected rate of return of 20%. MBI, a large computer company, will pay a year-end dividend of $2.80 per share.

a.

If the stock is selling at $58 per share, what must be the market's expectation of the growth rate of MBI dividends?

2. If dividend growth forecasts for MBI are revised downward to 8% per year, what will happen to the price of MBI stock? Does the Price rise or fall?

3.

What (qualitatively) will happen to the company's priceearnings ratio?
	The priceearnings ratio will fall. The priceearnings ratio will rise.