Question

15 Oil prices have increased a great deal in the last decade. The following table shows the average oil price for each year since 1949. Many companies use oil products as a resource in their own business operations (like airline firms and manufacturers of plastic products). Managers of these firms will keep a close watch on how rising oil prices will impact their costs. The interest rate in the PV/FV equations can also be interpreted as a growth rate in sales, costs, profits, and so on. 10

Answer 1

We have to calculate the Compound Annual Growth Rate (CAGR) for 10 years of oil prices using the 1949 and 1978 oil prices which is calculated by below formula :-

CAGR = (Ending Price/Begining Price)^(1/n)-1

Ending Price = $9.00 (1978)

Begining Price = $2.54 (1949)

N = Period (1949 to 1978) = 29 Years

CAGR = (9.00/2.54)^(1/29)-1 = 4.46%

Annual Growth Rate in Oil Prices in 29 years is 4.46%