Question

What is the key difference between simple growth rate and compound annual growth rate (CAGR)?

• A. CAGR provides a risk-adjusted return on investment, while simple growth rate does not consider market volatility.
• B. Simple growth rate is used for short-term, year-over-year comparisons, whereas CAGR is exclusively applied to long-term economic projections.
• C. Simple growth rate does not account for compounding, while CAGR assumes compounding over a period.
• D. CAGR requires a full set of annual data points for its calculation, while simple growth rate only needs the initial and final values.

Answer 1

Answer:

C. Simple growth rate does not account for compounding, while CAGR assumes compounding over a period.

• Simple growth rate is a basic percentage change from one value to another.

• CAGR is a smoother, compounded rate that assumes the growth is reinvested and grows exponentially over a period of time.