DIY Building Supplies has the following record of paying dividends What are the arithmetic and geometric average growth rates of DIY's dividend payments?

Question

DIY Building Supplies has the following record of paying dividends  What are the arithmetic and geometric average growth rates of DIY's dividend payments?

Quizplus · Accepted Answer

Using the given record of dividend payments, we can calculate the arithmetic average growth rate as follows:

Arithmetic average growth rate = (0.15 + 0.17 + 0.19 + 0.21 + 0.23)/5 = 0.19 = 19%

To calculate the geometric average growth rate, we can use the formula:

Geometric average growth rate = (Dividend payment in year 5 / Dividend payment in year 1)^(1/4) - 1

Plugging in the values, we get:

Geometric average growth rate = (0.23 / 0.15)^(1/4) - 1 = 0.0386 = 3.86%

Therefore, the correct answer is C, with an arithmetic average growth rate of 3.87% and a geometric average growth rate of 3.86%.

DIY Building Supplies Has the Following Record of Paying Dividends