Question

Charlene owns stock in a company which has consistently paid a growing dividend over the last five years. The first year Charlene owned the stock, she received $1.71 per share and in the fifth year, she received $2.89 per share. What is the growth rate of the dividends over the last five years?

A)

12 percent

B)

7 percent

C)

5 percent

D)

14 percent

Answer 1

To find the dividend growth rate for the stock over five years, we use the compound annual growth rate formula. After computation, the result is approximately 11%, with the closest answer provided being 12 percent (Option A).

Step-by-step explanation:

To determine the growth rate of the dividends over the last five years for the stock Charlene owns, we can use the formula for the compound annual growth rate (CAGR), which is:

CAGR = (Ending Value/Beginning Value)^(1/Number of Years) - 1

Plugging in the values provided:

CAGR = ($2.89/$1.71)^(1/5) - 1

CAGR ≈ 0.11 or 11%

The closest answer to this result is A) 12 percent. To calculate the growth rate of dividends over the last five years, we need to use the formula:

Growth Rate = (Ending Dividend - Starting Dividend) / Starting Dividend * 100

Plugging in the values, we get: (2.89 - 1.71) / 1.71 * 100 = 0.18 or 18%

Therefore, the growth rate of dividends over the last five years is 18 percent.