When estimating the annual growth rate of a dividend stream,we can use a short-cut to determining the average growth rate by ________.
A)using just the first dividend in the stream and the time-value of money equation
B)using just the last dividend in the stream and the time-value of money equation
C)using the first and last dividend in the stream and the time-value of money equation
D)using the first and last dividend in the stream and the future value interest factor

Question

Quizplus · Accepted Answer

To estimate the annual growth rate of a dividend stream using a shortcut, we need to use the first and last dividend in the stream and the time-value of money equation. Specifically, we can use the following formula: 
average growth rate = (last dividend/first dividend)^(1/number of years) - 1
This formula assumes that the dividend growth rate has been constant over the time period in question. If this assumption is not valid, a more complex analysis may be necessary.

When Estimating the Annual Growth Rate of a Dividend Stream,we