A corporation just paid a dividend of $1.50 a share. The dividend is expected to grow at 5 percent a year for the next 3 years, and then 10 percent a year thereafter. What is the expected dividend per share for 5 years?
A. $1.74
B. $1.91
C. $2.10
D. $2.33
2006-12-13 14:20:14 · 7 answers · asked by brinkmont 5 in Business & Finance ➔ Investing
$2.10
$1.50 share price.
$1.50 + 5% = 1.57 Year 1
$1.57 + 5% = 1.65 Year 2
$1.65 + 5% = 1.74 Year 3
$1.74 + 10% = 1.91 Year 4
$1.91 + 10% = 2.10 Year 5
2006-12-13 14:28:53 · answer #1 · answered by mark h 2 · 0⤊ 0⤋
Step by step: Multiply $1.50 * 1.05 (105%) , take that answer and repeat 2 more times while recording your answers. Do the same 2 more times with 1.1 instead. Add the 5 answers, then divide by 5.
There's one thing about the question which is tricky. Is the $1.50 dividend counted as the first year? One of the answers probably allows for that possibility. Good luck!
2006-12-13 14:30:12 · answer #2 · answered by kcincon 3 · 0⤊ 0⤋
$1.50 x 1.05 x 1.05 x 1.05 x 1.10 x 1.10 =$2.10
This is true if it is compound interest rather than simple interest.
The following formula can be used if you understand that you must do it twice, once with the 5% interest and then again with the resulting value and 10% interest.
M = P( 1 + i )n
M is the final amount including the principal.
P is the principal amount.
i is the rate of interest per year.
n is the number of years invested.
The formula can be found at the site below.
2006-12-13 14:49:54 · answer #3 · answered by Elizabeth 3 · 0⤊ 0⤋
A is my answer.
Just rough math 1.575 after one 1.65 after two well a little more but dont got time for a calulator 1.725 three so its going to be just a little higher than that since the last two are 10 if I got it right 1.8975 the fourth so thats a upper limit thus ruling out all other answers but A. I am sure I am wrong because I am not reading this right.
2006-12-13 14:31:23 · answer #4 · answered by William H 2 · 0⤊ 0⤋
Year 0 Div = 1.5
Year 1 Div = 1.5*1.05
Year 2 Div = Year1*1.05
Year 3 Div = Year2*1.05
Year 4 Div = Year 3*1.10
Year 5 Div = Year 4*1.10
Year 5 Div =$2.10/share
2006-12-13 14:29:38 · answer #5 · answered by SWH 6 · 0⤊ 0⤋
You will exactly $2.33
Cause, see the 5% of $1.50 in total is 1.675 for first year
5% of $1.675 in total is 1.75875 for the second year
5% of $1.758 in total is 1.8458 for the third year
10% of $1.8458 in total is 2.030 for the fourth year
10% of $2.030 in total is 2.233 for the fifth year
I dont know whether my calculation was correct, but the answer i get for your question is $2.233 (anyway it didnot match)
2006-12-13 15:00:05 · answer #6 · answered by Intelligentia 2 · 0⤊ 0⤋
C.$2.10
TRUE FACT you made me look this up!
2006-12-13 14:23:24 · answer #7 · answered by bobby o 1 · 0⤊ 0⤋