The stock price of Jenkins Co. is $54.70. Investors require a 13 percent rate of return on similar stocks.

The stock price of Jenkins Co. is $54.70. Investors require a 13 percent rate of return on similar stocks.  

Required:

If the company plans to pay a dividend of $4.00 next year, what growth rate is expected for the company’s stock price? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

 

Growth rate

%

Explanation:

We need to find the growth rate of dividends. Using the constant growth model, we can solve the equation for g. Doing so, we find:

g = R – (D1 / P0)

g = 0.13 – ($4.00 / $54.70)

g = 0.0569 or 5.69%