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Hello,
Phobia co(Dec 07) a part (||) in calculating Dgm how do we get 4.5??
How do we use in the calculator when we calculate square root??
Like 3 shift ???how does that work???In order to calculate an average growth rate (g), then:
g = (nth root of (latest dividend/earliest dividend)) – 1
where n is the number of years of growth
(I do explain this in detail with examples in my free lectures).In this question, the current dividend is 24c (60% x 40), the earliest dividend is 22c (from the question), and there is 2 years growth.
So g = (square root of 24/22) – 1 = 0.044 (or 4.4%) (the examiner has written 4.5% which is slightly wrong 🙂 )Your calculator should have a square root button on it, but where it is is different for every calculator. Also, you must have a scientific calculator for the exam because although here there is only 2 years growth (and therefore you need the square root), there could be (for example) 6 years growth, in which case you would need the 6th root!
If your calculator is scientific, then again how you use it depends on the calculator and you need to look at the instruction manual (if you do not have the manual then you should be able to find it by searching on the internet for it).
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