The Garden Shoppe has adopted a policy of increasing its annual dividend at a constant rate of 1.35 percent annually. The company just paid its annual dividend of $1.84. What will the dividend be nine years from now?

Question

Quizplus · Accepted Answer

First, we need to calculate the annual dividend growth rate using the constant rate of 1.35 percent:

1 + 0.0135 = 1.0135

Next, we can use the formula for future value of a growing annuity to determine the dividend in nine years:

FV = D[(1 + r)^(n) - 1] / r

where
FV = future value of the dividend
D = current dividend = $1.84
r = annual growth rate = 1.35%
n = number of years = 9

Plugging in the values, we get:

FV = $1.84[(1 + 0.0135)^(9) - 1] / 0.0135
FV = $2.08

Therefore, the dividend in nine years will be $2.08, which corresponds to choice C.

The Garden Shoppe Has Adopted a Policy of Increasing Its