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

A mobile accessory firm in Pune sold 4,000 units in its first year, and sales grow by 10% every year over the previous year. How many units will it sell in the third year?

Annual sales form a geometric progression with first term 4,000 and ratio 1.1. The third-year sales equal 4,000 x 1.1 x 1.1, which is 4,840 units. Simply adding 10% of 4,000 twice would give 4,800, ignoring compounding.

  1. A4,800 units
  2. B4,840 unitsCorrect
  3. C5,200 units
  4. D4,400 units

Explanation

Sales follow a GP with a = 4,000 and r = 1.1. Third year = 4,000 x 1.1^2 = 4,000 x 1.21 = 4,840. Adding 10% of the base twice (4,800) ignores compounding, which is the key error.

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