Required:

a$.$ Computer stocks currently provide an expected rate of return of $15\%.$MBI, a large computer company, will pay a year$-$end dividend

of $$1$ per share. If the stock is selling at $$50$ per share, what must be the market's expectation of the growth rate of MBI dividends? $($Do

not round intermediate calculations. Round your answer to $2$ decimal places.$)$

b$.$ If dividend growth forecasts for MBI are revised downward to $5\%$ per year, what will be the price of the MBI stock? $($Round your

answer to $2$ decimal places.$)$

Price

c$.$ What $($qualitatively$)$ will happen to the company's price$-$earnings ratio?

The $\frac{P}{E}$ ratio will decrease.

The $\frac{P}{E}$ ratio will increase.