Question

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. Average 011 Prices Per Year Barrel 1949 $2.54 1950 $2.51 1951 $2.53 1952 $2.53 1953 $2.68 1954 $2.78 1955 $2.77 1956 $2.79 1957 $3.09 1958 $3.01 1959 $2.90 1960 $2.88 1961 $2.89 1962 $2.90 1963 $2.89 1964 $2.88 1965 $2.86 1966 $2.88 1967 $2.92 1968 $2.94 1969 $3.09 1970 $3.18 Year 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 Barrel $3.39 $ 3.39 $ 3.89 $6.87 $ 7.67 $ 8.19 $ 8.85 $ 9.00 $12.64 $21.59 $31.77 $28.52 $26.19 $25.88 $24.09 $12.51 $15.40 $12.58 $15.86 $20.03 $16.54 $15.99 Year 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Per Barrel $14.25 $13.16 $14.62 $18.46 $17.23 $10.87 $15.56 $26.72 $21.84 $22.51 $27.54 $38.93 $46.47 $58.30 $64.67 $91.48 $53.48 $71.21 $87.04 $93.02 $97.91 $93.26 $48.79 Using the 1949 oil price and the 1959 oil price, compute the annual growth rate in oil prices during those 10 years. (Round your

Answer 1

Basically we have to calculate the CAGR for 10 years of oil prices using the 1949 and 1959 oil prices.

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

Ending Price = $2.90 (1959)

Begining Price = $2.54 (1949)

N = Period = 1949's price is the year end price, we can assume that it is the begining price of 1950, therefore, period = 1959-1950 = 9

CAGR = (2.90/2.54)^(1/9)-1 = 1.48%

Annual Growth Rate in Oil Prices in 10 years is 1.48%