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Computer stocks currently provide an expected rate of return of 16%. Dell, a large computer company, will pay a year-end dividend of $2 per share. If the stock is selling at $50 per share, what must be the market's expectation of the growth rate of Dell dividends?

b. If dividend growth forecasts for Dell are revised downward to 5% per year, what will happen to the price of Dell stock? What (qualitatively) will happen to the company's price-earnings ratio?

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Category:- Statistics and Probability
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