Over the past 4 years, a local firm has paid annual dividends of $1.62, $1.65, $1.70, and $1.74. What is the arithmetic average dividend growth rate?

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Quizplus · Accepted Answer

The arithmetic average dividend growth rate is calculated by taking the average of the annual dividend growth rates. The annual dividend growth rates are calculated by dividing the current year's dividend by the previous year's dividend and subtracting 1. The annual dividend growth rates are:Year 1: (1.65 - 1.62) / 1.62 = 1.85%Year 2: (1.70 - 1.65) / 1.65 = 3.03%Year 3: (1.74 - 1.70) / 1.70 = 2.35%The arithmetic average dividend growth rate is (1.85% + 3.03% + 2.35%) / 3 = 2.41%.

Over the Past 4 Years, a Local Firm Has Paid