4. The stock market is trading at $3,000 and paying a dividend of $60. You expect...

 

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4. The stock market is trading at $3,000 and paying a dividend of $60. You expect the growth rates of dividends to be 4% in perpetuity. (a) What is the expected return on the stock market? Assume both expected returns and growth rates are constant. The stock market suddenly drops to $2,000. After careful analysis, you conclude that the expected growth rates of dividends is unchanged. (b) What is the expected return on the market now? Continue to assume that both expected returns and growth rates are constant. (c) What could potentially explain such a change in expected returns? 4. The stock market is trading at $3,000 and paying a dividend of $60. You expect the growth rates of dividends to be 4% in perpetuity. (a) What is the expected return on the stock market? Assume both expected returns and growth rates are constant. The stock market suddenly drops to $2,000. After careful analysis, you conclude that the expected growth rates of dividends is unchanged. (b) What is the expected return on the market now? Continue to assume that both expected returns and growth rates are constant. (c) What could potentially explain such a change in expected returns?