Eckelberger Products, Inc. makes high-speed recorders with high-speed scanning. The small company has been growing at an average rate of 75% per year for the past 4 years. The CEO asked you to convert the past growth rate into a monthly rate for its annual report. If the past growth rate was an effective rate, what was the effective growth rate per month?

What will be an ideal response?


0.75 = (1 + r/12) 12 – 1
r/12 = (1 + 0.75) 1/12 – 1
= 4.77% per month
or using Equation [4.4] with m = 12
i = (1 + 0.75) 1/12 – 1
= (1.75) 0.08333 – 1
= 0.477 (4.77% per month)

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