The average annual growth rate formula can usually be calculated with the help of the simple interest as well as the compound interest formula. It is calculated in virtue of the principal amount especially the unpaid principal amount.
Formula for calcualting the average annual growth rate is given by
` I = P*N*R`
Where P = principal amount
and R = rate of interest
Simple interest for finding Average annual growth:
Here we are using Simple interest Formula for finding the average annual growth,
The simple interest formula is given by I=prt
In this We have to calculate the annual growth rate , then we have to divide it by the number of years given , Finally we got the annual growth rate.
Example problem :
we have $ 2000 which are to invest with a given rate of 3% for a 4 year period time.
So , Here P value = 2000 , R = 3 and T = 4.
By the formula of simple interest I =PRT
By plugging in the values we have ,
= 2000 * `3 /100` * 4
= `(2000*3*4)/100`
=20*3*4
=240
The interest amount for the period of 4 years = 240
So , average annual growth rate is` 240 / 4` => 60 (Answer)
Compound interest method for finding Average annual growth:
This is an alternate method for finding the average annual rate.
The formula is given by :
In the case , if interest is compounded once a year:
A = `P(1 + r)^n`
In the case , if interest is compounded q times a year:
A = `P(1 + r/q)^(nq)`
Here P is the principal amount, r is the annual rate of interest and n is the number of years
A is to find the money accumulated after n years, including interest.
Example problem:
The karthic deposit amount is 2000 the rate of interest is 2% and the 3 years to find the compound interes.
Here P=2000 , r = 2/100 and n = 3years
A is how much money you’ve accumulated after 3 years, including interest.
If the interest is compounded once a year:
A = P(1 + r)n
=2000(1+0.02)3
=2000(1.02)3
=2000 x1.0612
=2122.416
the compound interest of the given amount is =2122.416
If the interest is compounded 2 times a year:
A = P(1 + `r/q)` nq
q = is the number of times to year
==2000(1+0.02)3*2
=2000(1.02)6
=2000 x1.126
=2252.32
The compound interest of the given amount is =2252.32
The average annual growth rate is 2122.142 – 2000 =122.142.
Answer : The average annual growth value is 122.142