If one expects the annual dividend to be $0.95 five years from today when the current dividend is $0.62, the annual dividend growth rate must be:

Question

Quizplus · Accepted Answer

The annual dividend growth rate can be calculated using the formula:Dividend Growth Rate = (Future Dividend / Current Dividend)^(1/n) - 1where:Future Dividend = $0.95Current Dividend = $0.62n = 5 yearsPlugging these values into the formula, we get:Dividend Growth Rate = ($0.95 / $0.62)^(1/5) - 1= 1.09 - 1= 0.09 or 9%Therefore, the annual dividend growth rate must be 9%.

If One Expects the Annual Dividend to Be $0