We have six end year dividends:
2004: $0.14
2005: $0.15
2006: $0.17
2007: $0.17
2008: $0.19
2009: $0.22
The book asks: “What is the annual growth rate of dividends over the period from 2004-2009?”
I wrote down: (0.22 / 0.14)^1/6 - 1 = 7.83%.
The book says that the answer is (0.22 / 0.14)^1/5 - 1 = 9.46%.
Why do we put down 5 for the number of periods as opposed to 6? I see this problem in a similar light as a time weighted ROR problem where you find the HPR then to find the compound annual rate of return, you add 1 to every percent, multiply them together then raise to 1/the number of periods. Of course, that involves percentages whereas this involves actual dollar figures, but I am not sure if that has any affect on the outcome of this problem.
Thanks.