Dennison Mfg. pays annual dividends. For the past six years, the firm has paid dividends of $1.10, $1.15 $1.20, $1.25, $1.30, and $1.35, respectively. What is the geometric average dividend growth rate for this time period?

Question

Quizplus · Accepted Answer

The geometric average growth rate can be calculated using the formula: [(Ending Value/Beginning Value)^(1/Number of Periods)] - 1. Here, the ending value is $1.35, the beginning value is $1.10, and the number of periods is 5 (since we're looking at the growth rate over six years, which gives us five periods of growth). Plugging these values into the formula gives us: [(1.35/1.10)^(1/5)] - 1 = 0.0418 or 4.18%.