Question

A firm's dividends have grown over the last several years. 3 years ago the firm paid a dividend of $1. Yesterday it paid a dividend of $7. What was the average annual growth rate of dividends for this firm? Round the answer to two decimal places in percentage form.

Answer 1

Answer:

The average annual growth rate of dividends for this firm is 90.05%

Explanation:

In order to calculate the average annual growth rate of dividends for this firm we would to have to use the following formula:

A=P(1+r/100)^n

where

A=future value

P=present value

r=rate of interest

n=time period.

7=1*(1+r/100)^3

(7/1)^(1/3)=(1+r/100)

(1+r/100)=1.9005

r=(1.9005-1)*100

=90.05%(Approx).

The average annual growth rate of dividends for this firm is 90.05%