Dividend growth rate is important to many investors. You are considering investing in a firm after looking at the firm's dividends over a seven-year period. At the end of the year 2002, the firm paid a dividend of $1.15. At year-end 2009, it paid a dividend of $1.84.
What was the average annual growth rate of dividends for this firm?

A) 7.25%
B) 9.86%
C) 6.94%
D) There is not enough information to answer to the question.

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aristeus aristeus · Answer 1 · 2019-12-19T10:11:38+01:00

Answer:

Growth rate will be 6.94 %

So option (c) will be the correct answer

Explanation:

We have given principal amount in 2002 is $1.15

So P = $1.15

And after seven year in 2009 amount become $1.84

We have to find the rate of interest

Time period n = 7 years

We know that future amount is given by

[tex]A=P(1+\frac{r}{100})^n[/tex]

[tex]1.84=1.15(1+0.01r)^n[/tex]

[tex]1.6=(1+0.01r)^7[/tex]

[tex](1+0.01r)=1.0694[/tex]

[tex]0.01r=0.0694[/tex]

r = 6.94 %

So option (C) will be the correct option