Page 32 - DMGT405_FINANCIAL%20MANAGEMENT

Financial Management

Notes
Year 1998 1999 2000 2001 2002 2003
Dividend per share ( ) 21 22 25 26 28 31
Solution:

21 (1 + r) 5 = 31
(1 + r) 5 = 31 / 21 = 1.476
Notes: See the compound value one rupee Table for 5 years (total years - one year) till you find
the closest value to the compound factor, after finding the closest value, see first above it to get
the growth rate.

Task Determine the rate of growth of the following stream of dividends a person has
received from a company:

Year Dividend (per share) (Rs)
1 2.50
2 2.60
3 2.74
4 2.88
5 3.04

Doubling Period
Doubling period is the time required, to double the amount invested at a given rate of interest.
For example, if you deposit 10,000 at 6 per cent interest, and it takes 12 years to double the
amount. (see compound value for one rupee table at 6 per cent till you find the closest value
to 2).
Doubling period can be computed by adopting two rules, namely:
1. Rule of 72 : To get doubling period 72 is divided by interest rate.
Doubling period (Dp) = 72 ÷ I
Where,
I = Interest rate

Dp = Doubling period in years
Example: If you deposit 500 today at 10 per cent rate of interest, in how many years
will this amount double?

Solution:
Dp = 72 ÷ I = 72 ÷ 10 = 7.2 years (approx.)
2. Rule of 69: Rule of 72 may not give the exact doubling period, but rule of 69 gives a more
accurate doubling period. The formula to calculate the doubling period is:
Dp = 0.35 + 69 / I

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