Indexation question: How calculate the index growth if we have year 1 and year 4 figures?

Posted on 2011-04-20
Last Modified: 2012-05-11
Costs in Year 1 = $100
Costs in Year 4 = $130
What is the yearly growth rate.
So that if I was to multiply Year by "X", and then that result by "X", until year 4 it would give me an answer of $30 dollars.  

Question by:easycapital
    LVL 50

    Accepted Solution


    you cannot determine a reliable figure for growth rate from just two data points. You can calculate the average growth rate for each year between year 1 and year 4, something like


    but that is based on a very slim date source.

    Can you step back a bit and explain what you want to achieve?
    LVL 33

    Assisted Solution

    This should be the formula:

    =((End Value/Start Value)^(1/(Periods - 1)) -1

    I've attached a simple example file.


    LVL 24

    Expert Comment

    About 9.1%. It's the cube root of 30%.
    LVL 33

    Expert Comment

    My formula is based on a "Constant Annual Growth Rate"...
    LVL 19

    Assisted Solution

    if the yearly growth rate is linear, such as :

    year 1 : [start]
    year 2 : [start] * (1+[growth])
    year 3 : [start] * (1+[growth])^2
    year 4 : [start] * (1+[growth])^3 = [end]

    you can use the solver to solve this.

    cell A1 : start value
    cell A2 : growth value

    cell B1 : formula =A1 (this is the value for year 1)
    cell B2 : formula =A1*(1+A2) (this is the value for year 2)
    cell B3 : formula =A1*(1+A2)^2 (this is the value for year 3)
    cell B4 : formula =A1*(1+A2)^3 (this is the value for year 4)

    then use the solver as in

    menu data - analysis - solver
    target cell = B4
    by changing cell A2

    starting at 100 & ending at 130 : growth rate = 9,13935128252419 % = 0,0913935128252419

    LVL 85

    Assisted Solution

    by:Rory Archibald
    Assuming 1 and 4 in A1 and A2 and 100 and 130 in B1:B2 then
    LVL 3

    Expert Comment

    Actually, this sounds more like a high school homework question than something that would be needed in real life.

    Especially since, even here in Africa, everyone learns how to do that in high school.
    LVL 50

    Expert Comment

    Given easycapital's question history, I very much doubt that this is homework.

    Author Closing Comment

    Very interesting approaches.
    Thank you teylyn for the support.
    Storm Seed, you came really close to getting all the points :)
    On a serious note, this was to calculate manufacturing indexation.
    Thank you.

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