Assume a dividend today of $2.50 with anticipated growth over the next three years of 10%. The estimated dividend at the third year is:

Question

Quizplus · Accepted Answer

Using the formula for calculating future dividends, we have:

Year 1 dividend = $2.50 x (1 + 0.10) = $2.75

Year 2 dividend = $2.75 x (1 + 0.10) = $3.025

Year 3 dividend = $3.025 x (1 + 0.10) = $3.3275

Rounding to the nearest cent, the estimated dividend at the third year is $3.33, which corresponds to choice C.

Assume a Dividend Today of $2