Question

Sawyer Corporation's 2018 sales were $11 million. Its 2013 sales were $5.5 million.

1. At what rate have sales been growing? Round your answer to two decimal places.

     %

2. Suppose someone made this statement: "Sales doubled in 5 years. This represents a growth of 100% in 5 years; so dividing 100% by 5, we find the growth rate to be 20% per year." Is the statement correct?
   -Select-The statement is correct because 100% divided by 5 equals 20%.The statement is incorrect because there are 6 years of sales growth between 2013 and 2018.The statement is incorrect because a company's sales cannot double in such a short time span.The statement is incorrect since the effect of compounding is not considered.The statement is correct since the effect of discounting is considered.Item 2

Find the interest rates earned on each of the following. Round your answers to the nearest whole number.

1. You borrow $740 and promise to pay back $777 at the end of 1 year.

     %

2. You lend $740 and the borrower promises to pay you $777 at the end of 1 year.

     %

3. You borrow $81,000 and promise to pay back $208,862 at the end of 14 years.

     %

4. You borrow $18,000 and promise to make payments of $4,390.00 at the end of each year for 5 years.

     %

Answer 1

1. Compounded annual growth rate formula=([(Present value/Pat value)^(1/n)]-1)*100

=([(11/5.5)^(1/5)]-1)*100

=(1.1487-1)*100

=14.87%

Compounded annual growth rate=14.87%

2. The statement is incorrect since the effect of compounding is not considered. Like what we have done in above answer, we have to compound the interest rate.

3. use RATE function in EXCEL to find the interest rate

=RATE(nper,pmt,pv,fv,type)

a. nper=1 year; pmt=0; pv=740; fv=777

=RATE(1,0,-740,777,0)=5%

b. Its the same as a.

c. nper=14 years; pmt=0; pv=81000; fv=208,862

=RATE(14,0,-81000,208862,0)=7.0%

d. nper=5 years;pmt=4390; pv=18000; fv=0

=RATE(5,4390,-18000,0,0)=7%