Question

For each of the following streams of​ dividends,

	Dividend Stream			Copy to Clipboard + Open in Excel +
Year	A	B	C
20082008		​$1.801.80
20092009		​$1.861.86
20102010		​$1.931.93
20112011		​$2.002.00	​$2.182.18
20122012		​$2.072.07	​$2.242.24
20132013	​$5.205.20	​$2.142.14	​$2.292.29
20142014	​$6.016.01	​$2.212.21	​$2.322.32
20152015	​$6.816.81	​$2.282.28	​$2.372.37
20162016	​$7.597.59	​$2.332.33	​$2.412.41
20172017	​$8.418.41	​$2.452.45	​$2.502.50

​, estimate the compound annual rate of growth between the earliest year for which a value is given and 2017.

The compound annual growth rate of dividend stream A is

Answer 1

To calculate the compound annual growth rate of dividend, we use future value formula.

A) Future value( FV) = Present value( PV )*((1+growth rate( R))^no. Of years (N))

Y0 = 2013 ... Y4=2017

8.41= 5.20*(1+R)^4

R=12.77%

B) Future value( FV) = Present value( PV )*((1+growth rate( R))^no. Of years (N))

Y0 = 2008 ...Y9 = 2017

2.45= 1.80*(1+R)^9

R=3.485%

C) Future value( FV) = Present value( PV )*((1+growth rate( R))^no. Of years (N))

Y0 = 2011 ...Y6 = 2017

2.5= 2.18*(1+R)^6

R=2.31%