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Hi Sir,
I have begun practising Question C questions, and can see that some answers require me to to calculate the annual equivalent growth rates, whereas others require me to look instead at the arithmetic means growth?
I’m unsure to why we would use one over the other and cannot seem to found this in the course material, sorry if I have missed it.
Annual Equivalent Growth formula seen: (x/y)(indice: number of period) – 1
Arithmetic Means Growth: Add percentage changes per year and divide by number of periods
Thanks,
John
I assume that you are referring to the dividend growth rate.
If so, then I cannot remember any questions in the exam which wanted the arithmetic mean. We should always use the geometric mean (which is what your first description is).
Ok great thanks for answering. I’ll treat this as more of a red herring/outlier!
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