Read the example and answer the questions below.

Mission Beach Bananas Pty Ltd has a dividend policy whereby it will increase the dividend by $1.50 per share for the next four (4) years and pay a dividend of $10 per share forever after that time. The company has just paid a dividend of $1.75 per share.

a) If investors require a 5% return on similar companies, what is the current price of Mission Beach Bananas shares?

b) If investors require a 8% return what will be the current price of Mission Beach Bananas?

c) What does this tell you about the relationship between the required rate of return and the share price?