The blue stair-step line depicts the value of future stock dividends. The orange stair-step line depicts the present value of those future dividends discounted by rs for a stock with initial dividend D0=$1.15 and an anticipated growth rate of g=4%. Use the slider to change rS and observe the corresponding changes in the equilibrium price of the stock. P^0=t=1PVDt=rsgD0(1+g)=0.080.04$1.15(1+0.04)=$29.90 1. If rs increases to 10%, what would be the value of the constant growth stock? (Note: D0 is $1.15 and the expected constant growth rate g=4% ) a. $29.90 b. $19.93 c. $10.87 d. Undetermined 2. When r5 increases from, say, 8% to 10%, the value of the constant growth stock: a. Increases because the interest rate is higher. b. Decreases because its dividends are being discounted at a higher rate. c. Remains the same because it is a "constant growth" stock. d. Might either increase or decrease. a. Yes, it is a bargain. b. No, the stock is overvalued, as the expected stock price is only $14.95. c. Not enough information to determine whether it would be a good buy. Must rs be greater than g ? a. No reason rs needs to be greater than g because the formula adjusts the value of the stock appropriately. b. Yes, because if r5 were not greater than g, then the graph would be too large to display easily. c. Yes, because if rs=g, then the formula divides by zero, producing an infinite value