CFA Level I · CFA Level I Exam · Financial Analysis Techniques
A company reports revenue of 400 in Year 1, 440 in Year 2 and 484 in Year 3. Using Year 1 as the base year (index = 100), the Year 3 revenue index is closest to:
The Year 3 index is 121. Dividing Year 3 revenue of 484 by base-year revenue of 400 gives 1.21, or 121 when multiplied by 100. This equals two years of 10% compounded growth, not a simple 20% sum.
- A110.
- B121.Correct
- C132.
Explanation
Index = 484 / 400 × 100 = 121. Choosing 110 reflects only the Year 2 index, or one year of growth. Choosing 132 wrongly adds the two 10% growth rates and applies them to the Year 2 value (10% + 10% + 10%) rather than compounding.
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