F9 June 2010 Exam q4b -Historical Dividend Growth rate

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November 6, 2010 at 7:20 pm #45825
karenlaing
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Can someone please help me understand why when 2007 dividend is 37.0c and2009 dividend is 40.0c why historical dividend growth rate is (40/37)^0.5-1 = 0.04 (4%)
I am thinking there are two growth periods07/08 and08/09 so why not ^2?
Very confused …….
November 8, 2010 at 3:56 pm #70275
bridmw
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^0.5 is a different way of writing the square root. It’s incorporating the two periods. You’re only going to raise to the power of 2 when you are going the other way around eg. (1.04)^2 x 37 = 40
HTH
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