Question

The entrance cover charge at a local bar at the end of 2000 was $3 and the cover charge at the end of 2002 was $4. At what annual rate did cover charge grow?

Answer #1

The entrance cover charge at a local bar at the end of 2000 was $3 and the cover charge at the end of 2002 was $4. | |||||||||||

It means in 2 years, cover charge has been grown from $ 3 to $ 4. | |||||||||||

Now, we calculate growth rate through following formula: | |||||||||||

Future Value | = | Present Value *(1+g)^n | Where, | ||||||||

$ 4 | = | $ 3*(1+g)^2 | i | Growth rate | ? | ||||||

1.33 | = | (1+g)^2 | g | life in years | 2 | ||||||

1.33^(1/2) | = | 1+g | |||||||||

1.153256 | = | 1+g | |||||||||

g | = | 0.153256 | |||||||||

Thus, | |||||||||||

Growth rate in 2 years
is 15.33% |
|||||||||||

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