The Reading Co. has adopted a policy of increasing the annual dividend on its common stock at a constant rate of 3% annually. The last dividend it paid was $0.90 a share. What will its dividend be in six years?
A) $.90
B) $.93
C) $1.04
D) $1.07
E) $1.11

Question

Quizplus · Accepted Answer

The dividend in six years can be calculated using the formula for the future value of an investment with compound interest: $P(1 + r)^n$, where $P$ is the principal amount ($0.90), $r$ is the annual rate (3% or 0.03), and $n$ is the number of years (6). Plugging in the values gives: $0.90(1 + 0.03)^6 = 0.90(1.194052)$, which equals approximately $1.07465, rounding to $1.11.