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Calculate the average annual growth rate of dividends

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Go to the St. Louis Federal Reserve FRED database, and find data on net corporate dividend payments (B056RC1A027NBEA). Adjust the units setting to "Percent Change from Year Ago," and download the data into a spreadsheet.

a. Calculate the average annual growth rate of dividends from 1960 to the most recent year of data available.

b. Find data on the Dow Jones Industrial Aver-age (DJIA) for the most recent day of data available. Suppose that a 100 points dividend is paid out at the end of next year. Use the Gordon growth model and your answer to part (a) to calculate the rate of return that would be required for equity investment over the next year, assuming you could buy a share of DJIA.

Reference no: EM133069992

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