How to calculate the growth rate


During the past 10 years, the level of demand for a company's product has increased from 1,150 units per day to 2,150 units per day. What was the average annual compound growth rate over this period? Show the solution.

1.8695 = (1+g)^10
Growth Rate=10%
Ann KAsked:
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JohnBusiness Consultant (Owner)Commented:
No, not exactly.

2150/1150 = 1.8695 total growth.

Over 10 years:   1.8695 raised to the 0.1 power = 1.06466   or 6.5% average annual growth rate.

Test:  1.06.. x 1.06.. x ... 1.06.. 10 times = 1.8695.

A growth rate of 10% annually would compound to 2.59.
JohnBusiness Consultant (Owner)Commented:
Hi Ann, any thoughts on the above post?
awking00Information Technology SpecialistCommented:
The basic formula for calculating future or present value for a given time period at a given peiodic interest is as follows:
Future Value = Present Value times (1 + the interest rate per period) to the power of the number of periods. So this part is correct -
 1.8695 = (1+g)^10
The solving for (1 + g) = the 10th root of 1.8695 = 1.0645659 ==> Most modern calculators can perform nth root functions.
subtracting the 1 gives .0645659 or 6.45659 % annual interest rate compounded.

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JohnBusiness Consultant (Owner)Commented:
That is essentially the answer I gave earlier
awking00Information Technology SpecialistCommented:
John Hurst,
I agree. I was in the process of testing and posted before I saw your response. Sorry.
Ann KAuthor Commented:
Thank You.
JohnBusiness Consultant (Owner)Commented:
I gave the same answer earlier and in addition proved the answer.
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