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Question

Sparky Industries posted a dividend of $1.15 in 2011, $1.18 in 2012, and $1.30 in 2013.

What is the compound annual growth rate in the dividends?

A. 4.17%

B. 6.32%

C. 13.04%

Answer

The correct answer is B

To find the compound annual growth rate (CAGR), divide the ending period result by the beginning period result, then find the root based on the number of years after the first year and finally subtract 1:

S0,(1.30/1.15)1/2−1=0.0632=6.32%S0,(1.30/1.15)1/2−1=0.0632=6.32%

4.17% incorrectly uses three for the number of years instead of two. 13.04% is the percent change between 2011 and 2013, not the CAGR.

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