CA Foundation · Quantitative Aptitude · Measures of Central Tendency and Dispersion
The sales of a Surat textile firm rose by 25% in one year and by 80% in the next year. What is the average annual growth rate, measured using the geometric mean of the growth factors?
The average annual growth rate is 50%. Growth compounds, so the geometric mean of the factors 1.25 and 1.80 is used. The square root of 2.25 is 1.5, which means 50% per year. The arithmetic average of 52.5% overstates growth.
- A52.5%
- B55%
- C45%
- D50%Correct
Explanation
Growth factors are 1.25 and 1.80. Their product is 2.25, and the square root is 1.5, so the average growth is 50%. The figure 52.5% comes from averaging 25 and 80 arithmetically, which ignores compounding.
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