Which of the following is correct about the compound annual growth rate?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → It smoothens out the volatile nature of year by year growth/decay rates and provides more accurate results.
CAGR is based on compounding and gives a single growth rate that links the beginning value to the ending value.
It does not use arithmetic mean and it is not a linear measure.
It reflects the effect of compounding and smoothens year-to-year fluctuations.
The correct statement is: It smoothens out the volatile nature of year by year growth/decay rates and provides more accurate results.