How would you do this problem.
What is the growth rate of the stock with a $3.00 expected dividend and a $20.60 price with 15%required return?
To find the growth rate of a stock, you can use the Gordon Growth Model formula, which is also known as the Dividend Discount Model. The formula is as follows:
Growth Rate = (Dividend / Stock Price) + Required Return
In this case, the dividend is $3.00, the stock price is $20.60, and the required return is 15%.
1. Plug in the values into the formula:
Growth Rate = ($3.00 / $20.60) + 0.15
2. Simplify the calculation:
Growth Rate = 0.1456 + 0.15
3. Add the two values together:
Growth Rate = 0.2956
4. Convert the decimal to a percentage:
Growth Rate = 29.56%
Therefore, the growth rate of the stock is 29.56%.