Sales of $26,900 grow to $78,000 in 11 years. Calculate the percentage growth p.a.

Question

i don't know the formula for this question and the teacher didn't explain it very well so I don't understand it very well

Answer 1

We are looking for the growth rate that will grow $26,900 into $78,000 in 11 years.

 

The formula is:

 

Future Value = Present Value * (1+growth rate)¹¹

 

Rearranging gives us

 

(Future Value/Present Value) = (1+growth rate)¹¹

 

Taking the 11th root of both sides yields

 

(Future Value/Present Value)^(1/11) = (1+growth rate) = 1.1016

(1+growth rate) = 1.1016 therefore growth rate = 1.1016  - 1 = .1016 or 10.16% for the growth rate that is needed to increase $26,900 to $78,000 in 11 years.

 

Hope this helps