Answer:
FV = $2.20
FV = $2.15
FV = $2.29
Explanation:
given data
Annual dividend = $2
rate of interest = 2%
time period = 5
solution
we use here future value formula that is express as
FV = PV × [tex](1 + r)^t[/tex] .........................1
here FV is Future value and PV is Present value and r is rate and t is time
put here value and we get
FV = $2 × [tex](1 + 0.02)^5[/tex]
solve it we get
FV = $2.20
and
when Dividend will start growing next year
so here time period will be time period = 4 years
put value in equation 1 we get
FV = $2 × [tex](1 + 0.02)^4[/tex]
solve it we get
FV = $2.15
and
when Annual dividends will grow by 5% for 2nd and 3rd year and grow by 2% for 4th and 5th year
future value will be as
FV = PV × [tex](1 + r1)^{t1}[/tex] × [tex](1 + r2)^{t2}[/tex] ..............2
put here value and we get
FV = $2 × [tex](1 + 0.05)^{2}[/tex] × [tex](1 + 0.02)^{2}[/tex]
solve it we get
FV = $2.29