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i want to know in solution what is the use of general price index and how is the real dividend per share calculated? please help me out, too much of confusion.
The general price index is a measure of the rate of inflation.
So although the dividends per share have been increasing, part of the reason is just inflation. That is why they have calculated the ‘real’ dividend per share – it is the dividend with inflation removed.In 20×0 the price index was 100, and in 20×1 it was 105. This means that something that cost 105 in 20×1 would have cost 100 in 20×0 if there had been no inflation.
So……although the actual dividend in 20×1 was 2.2c, if there had not been inflation it would have been 2.2 x 100/105 = 2.095.In the same way, although the actual dividend in 20×2 was 2.2, if there had not been inflation it would have been 2.2 x 100/110 = 2.0c
These are the ‘real’ dividends – i.e. what the dividends would have been in there had not been any inflation.
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