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 grows at a constant rate of 3% annually. Using the formula for future value of a growing dividend: Future Dividend = Last Dividend * (1 + growth rate)^number of years. So, $0.90 * (1 + 0.03)^6 = $1.11.