In a stream of past dividends, the initial dividend is $1.25 and the most recent dividend is $1.80. The number of years between these two dividends (n) is 7 years. What is the average growth rate during this seven-year period?
Use a calculator to determine your answer.
A) 4.35%
B) 5.35%
C) 6.35%
D) 7.35%
Answer: B
Explanation: B) With N = 7, PV = -1.25, FV = 1.80, and PMT = 0, we get I/Y = 5.3473, or about 5.35%.
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