Please show work to the 3 questions below. Thank you.

1. 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 price-earnings ratio?
	The price-earnings ratio will fall. The price-earnings ratio will rise.