Question

The stock price of Fujta Company is $53.10. Investors require a return of 13 percent on similar stocks If the company plans to pay a dividend of $3.20 next year, what growth rate is expected for the company's stock price? Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.9., 32.16.

Answer 1

The expected growth rate for the company's stock price is approximately 9.92%.

Step-by-step explanation:

In order to determine the expected growth rate for the company's stock price, we can use the dividend growth model. According to the dividend growth model, the stock price is equal to the dividend expected to be paid next year divided by the required rate of return minus the growth rate.

Using the given information, the dividend expected to be paid next year is $3.20. The required rate of return is 13% or 0.13 as a decimal. Let's assume the growth rate is 'g'.

So, we can calculate the growth rate as follows:

$53.10 = $3.20 / (0.13 - g)

By solving this equation, we can find that the growth rate expected for the company's stock price is approximately 9.92%.