The stock price of Alps Co

Finance Sep 28, 2020

The stock price of Alps Co. is $53.70. Investors require a return of 15 percent on similar stocks. If the company plans to pay a dividend of $3.50 next year, what growth rate is expected for the company's stock price?

Expert Solution

Current Stock Price (P0) = $53.70

Expected Dividend (D1) = $ 3.50

Required Return (r) = 15 %

Growth rate (g)= ?

r = (D1/P0) + g

15%= (3.50/ 53.70)+ g

15%- (3.50/ 53.70)= g

g= 0.0848 or 8.48%

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