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16 April, 04:54

A firm's dividends have grown over the last several years. 3 years ago the firm paid a dividend of $1. Yesterday it paid a dividend of $7. What was the average annual growth rate of dividends for this firm? Round the answer to two decimal places in percentage form.

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  1. 16 April, 05:15
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    The average annual growth rate of dividends for this firm is 90.05%

    Explanation:

    In order to calculate the average annual growth rate of dividends for this firm we would to have to use the following formula:

    A=P (1+r/100) ^n

    where

    A=future value

    P=present value

    r=rate of interest

    n=time period.

    7=1 * (1+r/100) ^3

    (7/1) ^ (1/3) = (1+r/100)

    (1+r/100) = 1.9005

    r = (1.9005-1) * 100

    =90.05% (Approx).

    The average annual growth rate of dividends for this firm is 90.05%
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