DETERMINING GROWTH RATE
One method for determining a growth rate is to fit a regression line using the least-squares method to the
data. Figure 1 is a graph of the annual dividends for Merck & Company with a regression line drawn.
This straight line is calculated to fit the data with the least amount of error. The formula for this line is:
Y = a + bX
The letter Y is the dividends and the letter X represents time. The letter a is the Y intercept when X
equals zero and the letter b is the slope of the line. The slope of the line is the rate of change of the line.
The formula that statisticians use to estimate the slope of the regression line is: ...