Suppose Potter Ltd. just issued a dividend of $2.50 per share on its common stock. The company paid dividends of $2.00, $2.07, $2.24, and $2.34 per share in the last four years. What was the dividend growth rate for each year? (Do not round intermediate

Using dividend growth model formula for finding dividend per year can be used to find the growth rate per year;

The formula would be D1 = D0 (1+g)

and D2 = D1 (1+g)

D3 = D2 (1+g) and so on ...

Starting with 2.00 dividend, growth rate from yr1-yr2;

2.07 = 2.00 * (1+g)

Divide both sides by 2.00;

1+g = 2.07 / 2.00

1+g = 1.035

g = 1.035-1

g (y1-y2) = 0.035 or 3.5%

Growth rate from yr2-yr3;

2.24 = 2.07 (1+g)

Divide both sides by 2.07;

2.24/2.07 = 1+g

1.0821 = 1+g

1.0821-1 = g

g = 0.0821 or 8.21%

Therefore, g (y2-y3) = 8.21%

Growth rate from yr3-yr4;

2.34 = 2.24 (1+g)

Divide both sides by 2.24;

2.34/2.24 = 1+g

1.0446 = 1+g

1.0446 - 1 = g

g = 0.0446 or 4.46%

Therefore, g (y3-y4) = 4.46%

Growth rate from yr4-yr5;

2.50 = 2.34 (1+g)

2.50/2.34 = 1+g

1.0684 = 1+g

1.0684-1 = g

g=0.0684 or 6.84%

Therefore, g (y4-y5) = 6.84%