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 the company's dividend be in six years?
A) $0.90
B) $0.93
C) $1.04
D) $1.07
E) $1.11

Question

Quizplus · Accepted Answer

Using the constant growth dividend formula:
D6 = D0(1+g)^n
where D0 is the most recent dividend, g is the growth rate, and n is the number of years.

In this case, D0 = $0.90, g = 3% = 0.03, and n = 6.

D6 = $0.90(1+0.03)^6 = $1.07

Therefore, the company's dividend will be $1.07 in six years, which is option D.