Ashley owns stock in a company which has consistently paid a growing dividend over the last five years. The first year Ashley owned the stock, she received $1.71 per share and in the fifth year, she received $2.89 per share. What is the growth rate of the dividends over the last five years?
A) 7 percent
B) 11 percent
C) 12 percent
D) 5 percent

Question

Quizplus · Accepted Answer

The growth rate of the dividends can be calculated using the formula for the compound annual growth rate (CAGR), which is $$CAGR = \left(\frac{FV}{PV}\right)^{\frac{1}{n}} - 1$$ where FV is the future value ($2.89), PV is the present value ($1.71), and n is the number of periods (5 years). Plugging in the values gives $$CAGR = \left(\frac{2.89}{1.71}\right)^{\frac{1}{5}} - 1 \approx 0.11$$ or 11 percent.

Ashley Owns Stock in a Company Which Has Consistently Paid