Answered

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You are thinking of buying shares in Macquarie Group Limited (MQG). MQG have paid a $7.50 dividend in the current year and you believe this will increase at a rate of 7% a year into the future. Assume the required return on equity for MQG is 14%. Based on the constant growth DDM and using your valuation in Part (a), is the market expecting a higher or lower growth rate in dividends of 7%? Explain your answer.

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