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CMA Foundation · Fundamentals of Business Mathematics and Statistics · Arithmetic Progression and Geometric Progression

A firm's sales grew by 20% in one year and by 80% in the next year. What constant yearly growth factor would give the same two-year growth, found using the geometric mean of the growth factors 1.2 and 1.8?

The constant yearly factor is the square root of 1.2 times 1.8, which is the square root of 2.16. This is about 1.47, so none of the choices matches exactly and this question should not be used.

  1. A1.5Correct
  2. B1.44
  3. C1.6
  4. D1.3

Explanation

Overall factor = 1.2 x 1.8 = 2.16. The constant factor is its square root: sqrt(2.16) is not clean, so check options: 1.5 squared = 2.25, not 2.16. The correct value is sqrt(2.16) = 1.4697, nearest to none exactly.

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