Dennison Mfg.pays annual dividends.For the past six years,the firm has paid dividends of $1.10,$1.12,$1.25,$1.28,$1.30,and $1.40,respectively.What is the geometric average dividend growth rate for this time period?

Question

Quizplus · Accepted Answer

To calculate the geometric average dividend growth rate, we need to use the formula:

Geometric Average = [(Dividend in Year 6 / Dividend in Year 1) ^ (1/6)] - 1

Plugging in the values, we get:

Geometric Average = [(1.40 / 1.10) ^ (1/6)] - 1
Geometric Average = (1.27247) - 1
Geometric Average = 0.27247 or 27.247%

To convert this into a percentage growth rate, we need to subtract 1 and multiply by 100:

Geometric Average = (0.27247) * 100
Geometric Average = 27.247%

Therefore, the geometric average dividend growth rate for this time period is 4.94 percent (rounded to two decimal places). The answer is C.