A gallon of gasoline cost $0.39 during the summer of 1968 and $3.50 in the summer of 2008. To the nearest tenth of a percent, this is an average annual increase of
A)5.6%.
B)7.8%.
C)3.1%.
D)31.9%.

Question

Quizplus · Accepted Answer

The average annual increase can be calculated using the formula for compound annual growth rate (CAGR), which is $$CAGR = \left( \frac{FV}{PV} \right)^{\frac{1}{n}} - 1$$, where FV is the final value ($3.50), PV is the initial value ($0.39), and n is the number of years (2008 - 1968 = 40 years). Plugging these values in gives $$CAGR = \left( \frac{3.50}{0.39} \right)^{\frac{1}{40}} - 1 \approx 0.056$$ or 5.6% when converted to a percentage.

A Gallon of Gasoline Cost $0