ACCA FM · Chapter 1 · Question 7 of 10
A company's earnings per share (EPS) have risen from $0.32 to $0.41 over a three-year period. What is the average annual compound growth rate in EPS?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) 8.6%
Explanation
Compound annual growth = (0.41 / 0.32)^(1/3) - 1 = 1.28125^(1/3) - 1 = 8.61%, which is 8.6% to 1 decimal place. Dividing the total growth of 28.1% by three gives the simple (not compound) average of 9.4%, while using a fourth root wrongly assumes four years of growth.
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