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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 %

Respuesta :

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 %

Parrain

Based on the stock price, the required return, and the dividend, the growth rate for Baskett Co. must be 8.17%.

What is Baskett Co.'s growth rate?

This can be found using the Gordon growth model:
Stock price = Next dividend/ (Required return - Growth rate)

Solving gives:

54.10 = 3.70 / (15% - G)

15% - G = 3.70 / 54.10

- G = 6.84% - 15%

G = 8.17%

Find out more on the Gordon Growth Model at https://brainly.com/question/18760464.

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