Question

The stock price of Baskett Co. is $54.10. Investors require a return of 15 percent on similar stocks. If the company plans to pay a dividend of $3.70 next year, what growth rate is expected for the company’s stock price? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Growth rate %

Answer 1

Answer:

The growth rate is 8.17%

Explanation:

The formula to compute the growth rate is as follows:

g = R- (D1 / P0)

where

g is growth rate

R is return rate which is 15%

P0 is stock price which is $54.10

D1 is dividend which is $3.70

By putting the values in the formula:

g = 15% - (3.70 / $54.10)

  = 0.15 - 0.0683

 = 0.0817 or 8.17 %