The entrance cover charge at a local bar at the end of 2000

The entrance cover charge at a local bar at the end of 2000 was $3 and the cover charge at the end of 2002 was $4. At what annual rate did cover charge grow?

Solution

The entrance cover charge at a local bar at the end of 2000 was $3 and the cover charge at the end of 2002 was $4. It means in 2 years, cover charge has been grown from $ 3 to $ 4. Now, we calculate growth rate through following formula: Future Value = Present Value *(1+g)^n Where, $             4 = $ 3*(1+g)^2 i Growth rate ? 1.33 = (1+g)^2 g life in years 2 1.33^(1/2) = 1+g 1.153256 = 1+g g = 0.153256 Thus, Growth rate in 2 years is 15.33%