Can someone give me some advice for F9 June 2015 Past exam section B Q2 (a) please?
I calculated growth of the dividend using growth formula g= √ 5,729,760/5,280,000 -1 = 4.17%, but the answer is 5,729,760/5,280,000 = 8.52% I do not understand why I cannot use the formula for this growth calculation? I appreciate any response!
This question only requires the growth from 2014 to 2015 (1 years growth). Therefore (1+g)^n will equal (1+g). If for example g = 5 and growth was only one year, (1+g)^n will be (1+5)^1 which is the same was (1+5).
You must understand how the average growth rate is calculated first and then you will see that the square root is not required in this question. I've tried to break it down for you:
Dividend in 2014 * (1 + g)^n = Dividend in 2015
Rearranging the formula:
(1 + g)^n = Dividend in 2015/Dividend in 2014
1 +g = Dividend in 2015/Dividend 2014
g = (Dividend in 2015/Dividend in 2014) - 1
g = (5730/5280) - 1
g = 8.25%
I hope that made sense.