CA Foundation · Quantitative Aptitude · Mathematics of Finance
The sales of a firm rose from ₹4,00,000 to ₹9,00,000 over 2 years. Assuming steady compound growth, the compound annual growth rate (CAGR) is:
The CAGR is 50%. The sales ratio is 9/4 = 2.25 over two years, so the annual growth factor is the square root of 2.25, which is 1.5. Growth of 50% each year compounds to the observed increase.
- A25%
- B50%Correct
- C62.5%
- D125%
Explanation
(1+g)^2 = 9,00,000/4,00,000 = 2.25, so 1+g = 1.5 and g = 50%. Option 62.5% is the simple average of the 125% total growth over 2 years, which ignores compounding.
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