Financial Performance

Charlottec5779

Hi All

I am hoping that someone can help me with the below question below from Practice Test 4 of the

"The cost per unit of matieral BP* was £50 per kilogram on 1 January X1 and is £90 per kilogram on 1 January X7.

Using 1 January X1 as the base year, the cost index for material BP8 as at 1 JanuaryX7 is (A).

The cost per unit has increased by (B) % betweeen January X1 and X7.

This is equivalent to an annual compound interest rate of (C)."

I have worked out that A=180 & B=80% but I am unable to find the method for working out the annual commpound interest rate in any of my text books.

Any help anyone can give me would be greatly appreciated

Best Wishes
Charlotte

crispy

Hello,

Not sure if this is correct: -

No. of years price has increased = 6 (X1 to X7)

90/50 = 1.8

6th Root of 1.8 = 1.1029 (need scientific calculator)

1.1029 - 1 = 0.1029 say 10.3 %

You can check this back by 50*1.103^6 = 90

SandyHood

Charlotte
Super answer from crispy.
This compounding technique is no longer tested as neither syllabus includes it.