Question

If a firm’s earnings per share grew from $1 to $2 over a 10-year period, the total growth would be 100%, but the annual growth rate would be less than 10%. True or false? Explain.

Answer 1

TRUE

Step-by-step explanation:

as the growth rate follows the law of compounding it will be applied to the increases and then over the icnrease of the increases and so on. Giving a higher grow than 100% if 10 per year is applied:

`Principal \: (1+ r)^(time) = Amount`

Principal $1.00 earnings

time 10.00 years

growth rate 10% = 10/100 = 0.10000

`1 \: (1+ 0.1)^(10) = Amount`

Amount 2.59

This will be a grow of 2.59 - 1 = 1.59 = 159% which isn't the 100% percent growth the company actually had