One of the practice questions in Schweser volume two is asking will the annual revenue growth rate will be higher before or after translation, these are the three years and translation rate:
Revenue: 2014 2015 2016
765 820 870
Exchange Rates: 2014 2015 2016
1.4 1.3 1.45
The answer solves it out through CAGR of two years. My question is, why would the answer use CAGR ^ of two years not three years. And is CAGR the only way to solve out for revenue growth or we can use normal growth change=(new-old/old)
Because we have two growth rates (over three years) the first is the growth rate from 2014 to 2015 the second is from 2015 to 2016 , so to get the compounded rate by plugging it in CAGR formula
(Ending Value/Beginning Value)(1/number of years)-1
aka 870/7651/2 -1 it should give approximately 6.64%
or alternatively by the financial calculator FV=870 PV=-765 PMT=0 N=2 solve for I it will give you the same figure.
