You recently overheard a two finance students talking in the cafeteria about the growth rate of Comstock’s Cookies. As a savvy investor yourself, you are thinking about adding more growth stocks to your portfolio. You know that Comstock’s Cookies is currently trading for $41 and recently paid a dividend of $1.75/share. You require a 10% return as an investor.
a) What is the current assumed growth rate that is priced into this stock?
b) Suppose the growth rate changed to 8%. What is the new price of the stock?