Question

a. Computer stocks currently provide an expected rate of return of 12%. MBI, a large computer company, will pay a year-end dividend of $3 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.)

Answer 1

6%

Step-by-step explanation:

Computer stocks currently provide an expected rate of return of 12%

A larger company MBI will pay a year end dividend of $3

The stock is selling at $50 per share

Therefore the market expectation of the growth rate can be calculated as follows

g= 12/100 - $3/$50

g= 0.12 - 0.06

g= 0.06 × 100

g= 6 %