What rate of nominal growth is expected in sales if they are currently $1,000,000 and expected to reach $1,600,000 in five years?
A)3.20 percent
B)9.86 percent
C)12.00 percent
D)16.00 percent

Question

Quizplus · Accepted Answer

The nominal growth rate can be calculated using the formula for compound annual growth rate (CAGR), which is $$CAGR = \left( \frac{FV}{PV} \right)^{\frac{1}{n}} - 1$$, where FV is the future value ($1,600,000), PV is the present value ($1,000,000), and n is the number of periods (5 years). Plugging in the values gives $$CAGR = \left( \frac{1,600,000}{1,000,000} \right)^{\frac{1}{5}} - 1 = 1.6^{\frac{1}{5}} - 1 \approx 0.0986$$ or 9.86 percent.

What Rate of Nominal Growth Is Expected in Sales If